Western European Car Registrations Up 0.8% in August, But German Market Still Drags, Global Insight Forecasts

Western European car registrations picked up 0.8% year-on-year (y/y) in August to 848,236 units, despite the fact that only Italy recorded a positive result among the top five markets. With no working-day adjustment needed in August, the seasonally adjusted actualised run rate (SAAR) was 14.9 million units, down from 15.0 million in July, and the fourth-highest trend total for the year. The German market continued to drag down sales, falling 2.2% y/y in August, leading to a downwardly revised full-year forecast, although the market is expected to receive a boost from the IAA Frankfurt Motor Show this month and the new model activity generated at the event. Western European sales for the year-to-date (YTD) period ending August topped the 10-million mark and were just 0.1% down on the January-August 2006 total of 10,046,598 units.

Germany

German new car sales fell for the eighth straight month in August, by 2.2%, but this was the smallest monthly decline so far this year. The weakness in the German market persists and is generally attributed to the increase in value-added tax (VAT) at the beginning of the year, which led to a considerable pull-forward effect at the end of 2006. Apart from the rises in VAT and insurance tax, stricter tax regulations for commuters, rebounding fuel prices in recent months combined with the ongoing debate on climate protection in Germany, and more specifically discussions on new taxes for passenger vehicles based on carbon dioxide (CO2) emissions, are the main drivers behind the current market trend. Should sales continue to develop at this rate, the German new car market may barely reach 3.15 million units in 2007, the lowest yearly total since 2003.

United Kingdom

Preliminary figures for the U.K. market show that registrations were down just 0.4% y/y in August, although overall volumes were low at 77,649 units ahead of the biannual registration-plate change, due on 1 September. In the YTD, sales in the U.K. market were not adversely affected by the August results, continuing the positive trend, up 2.2% at 1.52 million units, according to SMMT data.

Italy

Italian new car registrations were the only bright spot among the top five markets, totalling 103,750 units in August, up from 97,167 in the same month last year, boosted by the continuation of the scrappage incentive scheme and Fiat's new model activity. For the YTD, Italian sales of new cars rose 6% y/y from 1,618,772 units to 1,736,377 units. The Fiat Group’s fortunes mirrored the sharp upward direction of the overall Italian new car market in August. All the three main Fiat Group brands, Fiat, Alfa Romeo and Lancia, posted a sales rise in the month, of 9.3% y/y, 1.9% y/y, and 4.7% y/y, respectively, with Fiat the only division to outperform the surging overall market. The Fiat brand recorded 25,109 unit sales in August, compared to 22,976 during August 2006. Alfa Romeo sold 3,093 cars in the month, while Lancia recorded a sales total of 4,808 units, compared to 4,591 during the same month last year. In the first eight months of the year, the three brands performed even better, recording sales growth of 11.2%, 5.7%, and 7.5% y/y, respectively.

Spain

Spanish car sales fell 2.7% y/y in August, data from industry association ANFAC showed on Monday (3 September). Sales totalled 99,662 units during the month, compared to 102,389 in August 2006. In the YTD, 1,119,044 vehicles were sold, down from 1,135,841 in the same period last year, a decrease of 1.5% y/y. Citroën was the top-selling brand in August, ahead of Renault and Volkswagen (VW). With a 71% share, diesel-powered cars again accounted for the vast majority of Spain's car market in August, with gasoline (petrol)-run cars accounting for the remaining 29% of the market.

France

The French market for new passenger cars fell by 2.4% y/y in August, which had an identical number of working days (22) compared to August 2006. With 1,375,208 registrations recorded in January-August 2007, the market for new passenger cars has stabilised both in terms of raw data and adjusted for working days (down 0.6%) compared to the same period in 2006. "This slight [August] decline takes place in a traditionally very inactive month which is therefore not very significant", the CCFA car industry body said.

Outlook and Implications

Concern over the lack of activity in Germany remains strong, leading to a further downgrade of the VDA and Global Insight full-year forecasts for the market. However, according to the VDA, domestic orders finally stabilised in August, having shown y/y declines since November 2006 and a cumulative plunge of 7% y/y in the period January-May, suggesting that adverse factors that dampened sales in the first half of the year may be subsiding. Positive consumer and business confidence combined with strong replacement demand in line with an ageing car parc, should provide a favourable market context during the rest of the year, while the Frankfurt Motor Show, which starts next week, is also expected to have a certain positive effect on new car registrations. However, if this fails to spur the market, it could be heading for its worst year since reunification.

The lethargy in the U.K. market in August was largely attributable to the slowdown in registrations ahead of the biannual plate change on 1 September, while the slight fall in France was considered as being of little importance as it came during the holiday period when the market is not very commercially active. However, following the strong recovery in French sales in July (up 21% in unadjusted terms and up 10% on a like-for-like working-day basis), which offset the poor performance since the beginning of the year, it would seem that the market is stabilising.

The Italian market continued the positive trend set at the beginning of the new year, which has mainly been due to the introduction of the new scrappage incentive scheme in January this year. The tax breaks introduced in January by the Italian government have also provided a boost to Fiat because it makes mostly small cars with engines that pollute less than the bigger models made by its rivals. At the beginning of July, the Italian brand launched its new mini 500 model, the performance of which has outstripped Fiat's expectations and helped the manufacturer to increase its market share.

Rising interest rates in the Eurozone have been blamed for the fall in car sales in Spain, where household debt continues to be high. The renewal of the Plan Prever scrappage scheme in 2007 does not seem to have provided the kind of stimulus required to spur growth in the sluggish new car market. August's registrations continued the negative trend of the past months, fuelled further by decreased consumer confidence and a rise in interest rates. With a number of tax and legislation changes occurring in Spain, and in light of the intense competition in the country, as well as the launch of some new models later in 2007, the market may recover somewhat as the year progresses. However, Global Insight forecasts car sales to drop 2.6% this year as higher Eurozone interest rates put the squeeze on consumer finance loans and domestic demand.