Western European Car Sales Leap 30% in November on Low Base Comparison—Forecast

West European car sales leapt 30.4% year-on-year (y/y) to 1.116 million units according to initial forecasts from IHS Global Insight. November's outstanding result was aided by a number factors, most significantly the extremely low base comparison month of November 2008, when the region was in the grip of the financial crisis and car sales plummeted. In addition, November 2009 had one extra working day, worth around 4.5%, but the driving factor behind the demand remains the various incentive programmes operating in many countries in the region. The Seasonally Adjusted Annualised Run-rate (SAAR) came in at 14.9 million units, an amazing result given the context of where the market stood at the beginning of the year, and year-to-date sales are down just 0.7% from 2008 at 12.629 million units.

All the big five markets reported strong gains, led by the U.K. market which reported a 58% rise y/y in November, where demand is being driven by the on-going scrapping incentive and the soon to end lower VAT rate. Naturally in the UK, as in the other markets, the backdrop of November 2008 makes he statistical rise seem extreme, but is nonetheless a strong result in the context of previous years. Indeed, ignoring last year's anomaly, the four year average for November in the U.K. market 2004 to 2007 is 160,000 units.

The French market posted the second biggest monthly growth figure during November, with the market showing a 48.4% (y/y) increase in sales during the month with sales of 216,452 units. In the year to date the French market increased by 7.6% y/y to post sales of 2.04 million units on the back of the 1,000-euro scrappage incentive programme that has been in place since 14 January. While November posted an exceptional one-off growth figure, the real reason behind such an accelerated growth figure was the low base comparison recorded during the equivalent period in 2008. Commenting on the results, CCFA President Xavier Fels said, "November 2008 was the low point of the cycle," adding that, "The question of the low basis of comparison is very important." Referring to the extremely poor market environment experienced in the last quarter of 2008, as a result of the global economic downturn. However, he also stated that in comparison to 2007's sales, which is a more like-for-like comparison the results were satisfactory and over the last four months the CCFA has been noticing a recovery in the French market.

The German passenger car market continued its robust growth trend that has been the dominant characteristic of the market throughout 2009 since the introduction of the scrappage scheme in February. November's sales volume of 279,000 units, translating to a y/y increase of 20% y/y against last years abnormal low. Indeed, again set against the context of November's average in Germany for the four years between 2004-7, that of 292,000 units, this months performance is some down on this figure. In November 2008 the worst effects of the global recession began to hit the German vehicle market and as a result sales in that month were down by 17.7% to 233, 772 units as the crisis began to bite. It should also be noted that the market in November 2009 will have benefitted from some ongoing momentum from the scrappage scheme despite funding for new orders having been exhausted by mid-September. However, while some of these previously made orders will still be filtering through to the market, every month that passes will see scrappage scheme-influenced sales dwindling, and they are likely to have little remaining influence on the market by the end of the year. In addition this past November's sales also benefitted from an extra working day in comparison to the month one year before. As a result, when all these factors are accounted for, it actually becomes clear that November's sales performance was not actually all that robust in comparison to the boom summer months, which saw record sales volume levels as a result of the scrappage scheme. However, the effect that the scrappage scheme has had in overall terms can be seen by the 25.4% increase in YtD sales, resulting in an overall passenger car market of 3.59 million units for the period.

November's sales figures for passenger cars in Italy also posted a strong growth level of 31.3% year-on-year (y/y) to 182,976 units, according to the latest data released by Anfia, with consumers looking to take advantage of the government's eco-incentive programme before its slated expiry date at the end of the year. Italy is now down just 2% y/y in the YTD period, just short of 2.0 million units. After the strong November results it is also expected that December's sales environment in Italy will be robust, which should boost sales to a similar level witnessed in 2008, during which 2.16 million units were sold. Commenting on November's results Gianni Filipponi, director general of Italy's foreign automakers association UNRAE, said, "New car sales in November... confirm the importance of incentives, which besides improving the quality of vehicles on the road are a support for a market that otherwise would have recorded strongly negative numbers with dramatic consequences for the entire automotive sector." December's sales are expected to be bolstered by the strong rate of advanced orders recorded in the market in November, which were up 44% to 204,000 units.

New passenger car sales in Spain posted a highly robust increase of 37.3 y/y to 86,639 units in November in comparison to the figure of 63,122 units that the market recorded in November 2009. However, the Spanish market was one of the worst-hit European markets as a result of the global downturn and this result was heavily influenced by the low base comparison. A truer picture of the market was again garnered from the November four-year average between 2004 and 2007, when Spanish new car sales averaged 130,000 units. In YTD sales terms, Spain remains down by 20.8% in the first 11 months of the year.

Outlook and Implications

Although November's result is welcome news across the region for carmakers, distributors and the man affiliated industry, the question of the payback in 2010 and beyond is now looming large in many markets. In Germany, VDA's forecast for 2010 is some 25% off from this years total, meaning unit total will come in between 2.75 million and 3.0 million vehicles in 2010 from the 3.8 million. VDA President Matthias Wissmann told a news conference: "The domestic car market is going to be tough in 2010. Trees do not grow to the sky," although he said low inventories would help mitigate production cuts for carmakers. With similar reactions expected in some of the other markets across Europe, such as the United Kingdom and Spain, overall the 2010 outlook for the Western European car market is that it will not match the volume of 13.4 million vehicles expected for 2009. Although both have recently extended incentives, they are the real struggling economies in the region.

Meanwhile, the Italian government is currently discussing the prospect of extending its own scheme into 2010, although this is still to be decided. The Italian finance minister Claudio Scajola is currently examining ways to finance the extension of the scheme to subsidise the purchase of low emission passenger cars into 2010, as the extension was not part of the government's original budget plan. As things stand the current programme, which offers 1,500 euro for car owners scrapping older vehicles, is set to run out on 31 December. While a gradual phase-out or the temporary renewal of scrappage schemes across the various European markets is the right strategy to avoid a sudden drop-off in sales, there is still scope for considerable sales declines moving into 2010.

A lot of demand has been fulfilled by the initial release of the scrappage schemes and it remains to be seen if the partial economic recovery that has been witnessed in the second half of 2009, will be sustained into 2010. As a result IHS Global Insight currently forecasts that there will be a drop-off in Western European passenger car sales next year of 8.5% y/y to 11.8 million units as scrappage schemes run their course.