Western European Car Sales Fall 19% in December, Down 8.4% in 2008—Forecast

Western European car sales are forecast to slump a further a 19.1% in December year-on-year (y/y), to around 834,000 units according to IHS Global Insight, despite the addition of two extra working days in the month and the usual push by manufacturers for year-end sales leading to intensive incentive activity. The contagion stemming from the financial and credit crisis has led to a sustained collapse in consumer confidence across the region, with the stronger markets of France and Germany remaining depressed and the other big three markets of the United Kingdom, Spain and Italy suffering significant falls again in December.

For 2008 as a whole we expect car sales to fall 8.4% for the full year to 13.55 million units, wiping 1.25 million units from Western European countries. However, the seasonally adjusted annualised run-rate (SAAR) in December was stronger than November's disastrous 11.7 million units, and came in at 12.5 million units, working-day adjusted. The monthly SAAR for Western Europe has averaged out over the fourth quarter at 12.5 million units and indicates a degree of stability, although this has meant an average 20% decline in unit numbers in the period.

Outlook and Implications

Although December's figures give little reason for cheer, they actually represent a stabilisation of sorts. The SAAR showed signs of stabilisation, averaging out at 12.5 million units in the last quarter.

The crisis has promoted some swift action from some governments in their varying attempts to stimulate the market, with France's bold scheme receiving the most positive feedback (see France: 5 December 2008: French Government Announces 1.5-bil.-Euro Auto Industry Aid Package). According to CCFA spokesperson François Roudier, the new incentive boosted car sales by between 12,000 and 14,000 vehicles in December compared to the forecast. Roudier also said that December 2007 was a high base comparison month thanks to the pull-forward effect of changes to the French taxation system (Bonus Malus) that penalises large cars and incentivises smaller, fuel-efficient models, which began in January 2008. If the incentive proves successful, it could also act as a blueprint for other European nations looking to stimulate demand. However, the optimism felt by the CCFA may well turn out to be short-lived, as latest consumer confidence figures published by Reuters today showed. In December, consumer confidence worsened to -44 from an unrevised -43 in November, national statistics office INSEE said. French consumer confidence sank in December as households worried that the sluggish economy would lead to a jump in unemployment and hurt their personal finances. The report said concerns about the outlook for unemployment rose to 79 from 75 in November. In addition, spending is expected to fall as indicated by an Ifop survey in the Journal du Dimanche newspaper, reporting that 69% of French households plan to cut their spending in 2009. The INSEE report showed the outlook for personal finances deteriorated to -20 from -19 in November.

In the United Kingdom, SMMT chief executive Paul Everitt commented on the 2008 sales result for the passenger car market, saying: "The global economic downturn, precipitated by the crisis in the international banking and finance sector, created unprecedented challenges for the UK automotive industry in 2008. The measures taken by government to support the banking sector and kick-start demand have been necessary, but are not yet sufficient to restore confidence. Further action to ease access to finance and credit across the economy is essential if long-term damage to valuable industrial capability is to be avoided. 2009 will be another difficult year for the UK automotive industry with new vehicle registrations and production significantly reduced." It is difficult to see much intrinsic improvement in the U.K. passenger car market until the credit markets are properly functioning again and there is a wholesale improvement in business and consumer confidence. As a result for 2009 IHS Global Insight sees the market dropping even more severely, by another 13.2% y/y to 1.887 million new cars.

In Spain, the government response to the slumping demand and the knock-on effect on production has seen 800 million euro (US$1 billion) worth of funding allocated to the country's crisis-hit automotive industry out of a wider 11-billion-euro economic rescue plan. Prime Minister Jose Luis Rodriguez Zapatero announced the measures in late November, which he hopes will lead to the creation of 300,000 jobs in Spain in 2009. Few details of how the automotive industry aid will be used are known, but Zapatero has said that he hopes the measures will protect a large number of jobs in the sector. Furthermore, the regional government of Aragon in Spain has reportedly agreed to underwrite the 200 million euro worth of funding that General Motors (GM) needs to carry on producing the Opel Meriva multi-purpose vehicle (MPV) at its Figueralas plant in Zaragoza, when the next-generation model is launched. The report said that the Aragon government will now issue a decree on the guarantee, which will then be put to the local parliament for approval. The automotive industry traditionally contributes some 8.4% of Spain's GDP and 26% of the value of its exports. Around half a million jobs in the Spanish auto sector are said to be at risk. It is for these reasons that authorities have been under pressure to take measures to help out the vehicle manufacturers and component suppliers that are based in the country. However, at least one industry group is unimpressed by the steps taken so far by the government. Faconauto, which is Spain's largest dealer trade association, has called the 800 million euro of aid "insufficient", and has said that it does not take into effect the auto-related jobs outside manufacturing, especially in the country's dealer network, which by itself employs some 160,000 workers.

Italy similarly is expected to announce an extension to its Euro II scrappage incentive scheme shortly, although which years of registration to include, whether to include a CO2 emissions limit for the new vehicle and other possible tax incentives are still being debated. In addition the demands of other industries will have to weighed as a wider stimulus package is likely given the prevailing precedents.