Western European Car Sales Up Just 0.5% Y/Y in 2009 as Scrapping Incentives Boost Market—Forecast

Western European car sales finished the year up 0.5% on the full-year 2008, as the various scrappage schemes introduced across many markets in the region fulfilled their task and dragged the market out of its catastrophic tailspin. According to IHS Global Insight's forecast, Western Europe finished 2009 with 13.63 million car sales, just 60,000 units ahead of 2008, but an incredible recovery in the context of where the market was at this time last year. A reliable indicator of how bad things could have been in 2009 was given by provisional light commercial vehicle sales figures, which for Western Europe are expected to fall 28% on 2008. This steep drop will drag the light vehicle segment down overall by around 3% when consolidated figures are released, but nevertheless, the boost these schemes have provided has been a lifeline for many automakers reliant on the region.

Naturally, as the schemes are exhausted (as in the case of the major contributing influence of Germany), 2010 is shaping up to be a highly uncertain year as many economies are still fragile and overall unemployment is still high. However, with sentiment and data emerging from many individual nations moving towards cautious optimism, 2010 will not be a return to the precipitous drops seen in early 2009. Whilst the business cycle is far from recovered, it is also in a far better place than it was with access to credit easing and many businesses adjusted to the "new reality."

Germany

After a year in which the German market has posted record accelerated growth month after month as a result of the stimulus provided by the government's massively successful 5 billion euro (US$7.23 billion) scrappage scheme, sales growth shuddered to an abrupt halt in December, with the market posting a 4.7% year-on-year (y/y) decline to 215,564 units. Nevertheless, the German passenger car market posted the most successful year in its history in 2009 as a result of the government's scrappage scheme which ran from the middle of January until the fund was exhausted in September. The scrappage scheme boosted sales by 23.2% y/y to 3.81 million units.

United Kingdom

Passenger car sales in the United Kingdom ended 2009 with another month of growth, carried by the continued customer support for the U.K. government's scrapping scheme, and those wishing to beat the rise in VAT from 15% to 17.5% on 1 January. The number of cars sold during December increased by 38.9% year-on-year (y/y) to 150,936 units. However, despite the strength of the current month and those preceding it as a result of the scrapping scheme, sales remained down over the course of 2009, falling 6.4% y/y from 2.132 million units to 1.995 million units. Private buyers have most benefited the market during the year, making up around half the market, up from around 42% in 2008.

France

The passenger car market in France has recorded its highest sales since 1990, with demand surging during December as customers sought to capitalise on the final month of the full scrappage incentive of 1,000 euro (US$1,435) and the low baseline comparison. Car sales in December surged by 48.6% year-on-year (y/y) and unsurprisingly it was local automakers which reaped the most benefit from the rush. For the full year 2009, the car market grew by 10.7% y/y despite the difficult economic conditions, with total sales ending with nearly 2.27 million units, around 40,000 units behind a previous record set in 1990. Again, it was the French brands that benefited, with growth at Renault and Citroën above the market rate.

Italy

Italian passenger car sales in 2009 almost matched those seen in 2008 according as demand fell just 0.2% y/y to 2.16 million units during the year. December car sales increased by 16.7% y/y mainly on he extremely low base comparison month of 2008. Local automaker, the Fiat Group, saw its sales rise by 2.7% y/y during the year, as it took a market share of 32.8%, with both the Fiat brand and Lancia being growth areas. However, similar to the effect that has been seen in other countries, smaller automakers in the market have been capitalising on the 1,500 euro on offer to customers scrapping an older vehicle, with South Korea's Hyundai Group seeing sales rise by over 90% y/y during the past 12 months. Ford has also seen its sales jump by almost a quarter over the same time, thanks to the popularity of the B-segment Fiesta.

Spain

Spain, which has been by far the worst affected of the three European markets, has also clawed back some of the losses seen earlier this year as a result of the country's own scrapping scheme to incentivise customers to buy lower exhaust emission vehicles. The passenger car market tumbled by 17.9% y/y during the year to just over 950,000 units, a considerable recovery from the 50% declines seen earlier in the year, but also must be set in context against the low base effect towards the end of 2008. However, ANFAC said in a statement that the Plan 2000E put in place by the Spanish government, regional administrations, automakers and importers boosted demand and "salvaged a year that was turning out very badly," estimating that an extra 125,000 sales had been made as a result. It also revealed that the plan, which was extended during the final months of the year (see Spain: 26 October 2009: Spanish Government Extends Scrappage Scheme), had seen a gain in the number of vehicles eligible to benefit from the scheme rise by 4.7% y/y to 658,627 units. These vehicles were one of the drivers of passenger car sales levels in December rising by 25.1% y/y to 90,553 units.

Outlook and Implications

Western European car sales are set or an uncertain year heading into 2010 as many of the government-sponsored scrapping incentives that have underpinned demand wind down or have already finished. The degree to which these schemes have pulled forward sales from 2010, or persuaded individuals into the market who would have otherwise bought used, is yet to be determined. However, the likelihood is that it is indeed a bit of both. The anomalies in sales split by brand and price indicate that the demographics of incentivised sales may well have been effective in dragging in one-off purchasers into the new car market. Brands such as Hyundai, Kia and Fiat have performed outstandingly well, particularly their largely small, cheap car lines such as Panda, i10 and the like. However, set against the sheer scale of buying under the schemes, particularly in Germany, and some sort of hangover heading into 2010 is inevitable.

Nevertheless, key markets such as France and Germany are proving more resilient to the economic downturn than previously thought, coming out of recession sooner and showing faster recovery rates; this will help underpin demand. Markets such as Spain and the United Kingdom, whose economies are more reliant on construction and property and/or banking, are to remain under the influence of incentives until later in 2010. Indeed, the second quarter will be the acid test of the markets' strength, but overall although the Western European car market could fall as much as 12% in 2010, it could also perform far better than this to finish less than 10% down.