Western European Car Sales Up 11% in March Despite Slack German Market—Forecast

Western European car sales rose 11% year-on-year (y/y) in March to 1.59 million units, according to IHS Global Insight's latest forecast. The month was buoyed by strong U.K., French, Italian and Spanish markets and despite the sharp fall in Germany (-27%) in the post-incentive environment. The Seasonally Adjusted Annualised Run-rate (SAAR) reached just over 14 million, again some 11% higher than the same month in 2009, but the SAAR is tailing off in the past few months, as expected, as the various incentives operating across Europe dwindle and expire. More worryingly, as the U.K. and Italian schemes ended last month, the decline is expected to continue and accelerate in the coming months as the fragile recovery has yet to materially impact the business and replacement cycle.

The U.K. market reported top-line figures today, with passenger car sales rising 27% y/y to just short of 400,000 units, in the biggest selling month of the year, making the United Kingdom the largest single market in Europe for the month by some margin.

Passenger car sales in France and Italy during March were again up significantly once more as a result of low bases and the ongoing effect of the scrappage schemes. The Italian market posted a 19.6% y/y rise in sales to 257,694 units despite the fact that the scrappage scheme has been exhausted in the country, following the decision not to renew the scheme back in February. March's sales were bolstered by sales that were processed through the scrappage scheme in advance. However, the Italian foreign carmakers' industry association Unrae said the figures did not present an entirely accurate picture because of the impact of incentives which stopped at the end of 2009 but can be applied to cars registered by 31 March 2010. Unrae has said that given a fall in orders of about 30% in the first quarter of the year, it now expected a record-low of orders for new cars this year at a little over 1.5 million units, which would be at least 800,000 units less than 2009. In France, sales rose by 12.8% y/y during the month to 242,763 units, according to the data released by French industry association CCFA, but CCFA president Xavier Fels warned however, that the recovery "remained fragile".

Spanish passenger car sales meanwhile rose by an accelerated rate of 63.1% y/y in March to 124,756 units, according to a Reuters report. March's sales benefited from the ongoing Plan 2000E vehicle scrappage scheme, which offers a special credit of 2,000 euro towards the purchase of a new passenger car, according to local industry body ANFAC.

The German passenger car market continued its dramatic decline during March, down 26.6% to 294,375 units. This was faster than in the first two months of the year, with the combined decline in the first three months of the year standing at 22.8% to 670,410 units. The German scrappage scheme was at its height in March, April and May 2009 following its launch in February and had the most influence over the market during those three months, so the March figure has a very high base level comparison. However, calendar effects should also be taken into account, as March 2010 has one more working day. A more accurate comparison for the market is with 2008, and first-quarter sales volume is only 9% down in comparison to the first quarter of 2008. There are also signs that the sales mix is returning to a more traditional structure following the 2009 market which led to accelerated growth of small-capacity gasoline (petrol)-engined cars. The chairman of the Association of International Motor Vehicle Manufacturers (VDIK) Volkerl Lange said, "The share of new cars with diesel engines showed the expected recovery in March. Mini and compact cars, which gained disproportionally in 2009, also declined in March 2010, but showed double-digit growth rates compared with March 2008."

Outlook and Implications

The high volumes and significant percentage increase witnessed in the U.K. market in March were attributable to a number of reasons, most significantly, the registration plate change which now takes place in March and September. Additionally, the end of the government-sponsored scrapping scheme in the month has left just 20,000 units left to be delivered in the scheme and it is clear that most opted for March delivery for the new plate. Furthermore, March 2009 was when the impact of the financial crisis was being felt, so the base comparison month was well down on the average for the month of March. Indeed, despite this months strong rise, the March total in the United Kingdom was down nearly 50,000 units on the last five years' average (ignoring the 2009 anomaly), which runs at 450,000 for the month. As the U.K. scrapping incentive is now over, and fuel prices have soared to over £1.20 per litre, due to tax increases and the weak pound, the market is expected to settle back considerably. In addition, the United Kingdom's vehicle parc, the number of vehicles per capita, fell 0.7% y/y in 2009, the first time such a fall has been recorded since 1964, a clear knock-on effect of the scrapping incentive coupled to consumers electing to scrap non-essential vehicles as general running expenses and affordability continues to come under pressure. Interestingly, a similar statistic was witnessed in the U.S. market where the parc fell for virtually the first time in peacetime history.

As was always expected by both IHS Global Insight and the various professional bodies that represent the German automotive industry such as the VDA and VDIK, the German passenger car market is paying a heavy price in 2010 for the runaway success of the scrappage scheme which ran from February to September 2009 before finally being exhausted. The 5-billion-euro fund benefited the purchase of two million passenger cars and saw a y/y uplift in pure terms in passenger car sales volumes of more than 700,000 units. Now, the German passenger car market is now having to survive without further stimulus and the accelerated double-digit decline is pretty much what was expected following the massively high base created last year, especially in the first few months following the scheme's inception with March, April, May and June posting particularly strong results.

There is some encouragement for the German OEMs, in the form of a strong recovery from BMW during March, but this was largely the effect of the initial uplift in sales experienced as a result of the launch of the aforementioned 5-Series. Audi and Mercedes-Benz have actually posted meaningful YTD declines on last year's outright sales volume figures for the first quarter, something that may be of some concern given the less than impressive sales performance both companies posted for the full-year last year. IHS Global Insight is forecasting a full-year sales decline of more than one million units in the passenger car sector in Germany, down to 2.8 million units, a fall of 26.5%. This is roughly in line with the fall the market experienced during the first quarter of 2009.

The Spanish plan 2000E scheme was renewed in October last year and again in the new year, and it has continued to supply the market with momentum into the first quarter of 2009. Sales increased by 18.1% y/y in January and rose by 47% y/y in February as the market benefited from the scheme, although the main component of the large accelerated increases experienced thus far in 2010 is the low base of comparison and as asserted above, not a general recovery.

The ongoing effect of the scrappage scheme was still being felt by the Italian and French passenger car markets in March, but the Italian market is likely to feel the effects of the end of its scheme going into the second quarter of the year. IHS Global Insight's view of the Italian market is marginally less pessimistic than the view shared by Unrae. We are currently forecasting a less dramatic decline in sales for the full year of 11.8% to 1.91 million units. The current forecast for the French passenger car market indicates an anticipated full-year decline of 8.6% fall to 2.08 million units.  

The Western European car market has now largely exhausted the various scrapping incentives, with some notable exceptions such as Spain, with the predictable net effect expected in the coming months, as many markets will begin to slide back to lower levels of activity. Although even in the Spanish market, the five-year average (ignoring 2009) for March is 160,000 units, and that includes the low March 2008 figure when the property bubble began to burst in the region and the crisis started to hit Spain before many other countries. Western European car sales for the first quarter are now up 11% on 2010, but are now expected to but reverse as many regions will fall back considerably as the fragile recovery has done little to inspire the business and replacement cycle. The fragile nature of the recovery in many markets will see car demand muted for much of the year and will result in an overall decline in the market in 2010, the only variable being by how much. The average weighted economic scenario indicates an 11% fall, considering the current environment.