Following the incentives fuelled bouyant sales of June, a weaker July was expected and duly arrived. The European new car selling rate fell from 15.3 million units/year in June to 14.1 million units/year in July. The result is consistent with LMC-JD Power’s forecast of around 14.7 million units for 2005 as a whole. The forecaster also expects a year-end incentive rush again this year, along with a boost to the German market as a result of upcoming tax changes.
Summary
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- Seasonally adjusted annualised sales in Western Europe fell back in July to just under 14.1 mn units/year as weak consumer demand and a relaxation in incentives took their toll. Sales were down by 1.4% year on year.
- Sales in Spain and the UK, while down slightly compared with their recent glorious histories, remained at strong levels. While markets in Germany and, especially, France and Italy, were unimpressive.
In July, the anticipated response to the incentive-inflated June result, did indeed come about: the selling rate fell from 15.3 mn units/year in June to 14.1 mn units/year in July – clearly, an average of the two months (14.7 mn units/year) represents a more accurate assessment of the recent level of underlying demand. This is, in fact, broadly the result we expect for 2005 in total. The year-end incentive rush looks likely again this year, as does some kind of boost to the German market as a result of upcoming tax changes (these changes are not yet set in stone, though appear more likely than not at this time). The outlook for 2006 is not especially bright at this point with no rise in sales now a core assumption.
The chart below shows total West European sales. The squares represent the total number of cars sold in a year, while the hollow dots represent the selling rate in individual months, and the continuous line represents a five-month moving average of these. We indicate the latest two months. The most recent numbers underlying this chart are appended in the table at the end of this note. There was one fewer selling day in July, compared with 2004.
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West European Car Sales
With a selling rate of 3.28 mn units/year in July, the German market remained unimpressive by its own historical standards – this level of sales is, coincidentally, the average of the past three years. Consequently, we have little reason to read any major changes in the market from this recent data. It is clear though that the upcoming election in September may have a number of consequences. For instance, the impact on consumer confidence can only be guessed at. One thing, however, which we can make note of is the CDU manifesto pledge of a VAT increase in January 2006 – this makes the chances of an increase in sales at the end of this year much more likely. We have altered our projections accordingly so 2005 now shows a small increase compared with 2004 (up 2-3%), though sales in early 2006 would likely be negatively impacted by this kind of pull forward in sales.
The UK market was down by around 7% in July as retail sales continued to suffer from a slowdown in consumer activity. Fierce incentives have not been able to stem the losses completely but have certainly helped the market a little, holding the selling rate a very respectable 2.5 mn units/year. We continue to expect a decline for 2005 though recent strong sales lead us to expect this may be closer to a 4% fall with some upside risk possible should incentives be liberally employed towards the end of the year.
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By GlobalDataIn Italy, sales eased back as a very poor macro-economic backdrop continued to undermine demand. Consumer confidence also fell to its lowest level in eight years last month. The 2.14 mn unit selling rate was somewhat disappointing in that we had expected some further upside resulting from delayed vehicle deliveries earlier in the year (from May’s truck strike) but that effect has seemingly now been worked through. We continue to expect a moderate full-year decline of around 4% in 2005 while the outlook for 2006 remains slightly negative.
The result in France was perhaps the most disappointing of all the large markets in July since the trajectory had seemed to be decidedly upwards in recent months – July rather undermines that trend a gives us the hindsight knowledge that the positive June result was almost certainly boosted by incentives. Looking forward, we are not concerned enough by this result to change significantly our expectations for this or next year: a 4% increase in 2005 should be followed by a further full-year gain in 2006, though the rate of growth will likely slow down.
Spanish sales eased back to a selling rate of 1.55 mn units/year in July hinting that some softness in demand may finally be emerging – or perhaps we should better describe this as a limit being reached, since 2005 will still probably turn out to be the best year on record with a market of almost 1.63 mn units. We expect a mild easing in the market in 2006: there is little reason to believe that underlying demand drivers will weaken significantly enough to cause a more serious decline at this point. One potential risk remains the renewal of the Prever scrapping incentive at the end of 2005 – we assume that renewal will take place, but no cast-iron guarantees have yet been given on this count.
Among the smaller countries Denmark and Ireland remain solid contributors to growth in the year-to-date while Greece and the Netherlands continue to struggle compared with last year.
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