European Car Sales – Good Times Now Over!

Notable amongst car manufacturers feeling a sharp pinch last month include GM with a 19.1% decline, Fiat, a worrying 22% decline and both Toyota and Honda with respective 22% and 24% declines. Still it wasn’t all quite as bad as that for volume producers as Ford did just slightly better than some with brand sales for May declining 16%. Indeed, PSA Group was down just 4.8% and somehow Renault managed an actual 7% increase in sales (explanations on a postcard please!). Amongst the niche quality producers both Jaguar Land Rover and Volvo showed further sales gains of 27.8% and 18.6% respectively – both likely benefitting from the combination of currency and new models. Rounding everything off there were small declines of 4.4% and 2.2% recorded for both Daimler Group and BMW.

For the most part the sharp fall in sales last month compared to May 2009 will be blamed on the end of various scrappage schemes. Nowhere is this factor better exampled perhaps than by the 45% increase in sales last month seen in Spain and the 47% increase in sales in Portugal both of which continue with incentive schemes. Meanwhile Germany which is Europe’s largest single market and where scrappage incentive schemes ended as long ago as last September reported a 35% drop in sales last month. The decline in Germany was not the worst last month though – top prize for this goes to Greece which reported a 54% drop.

Given that few if any governments in Europe are in any position to add much in the way of further manufacturing and consumer incentives and given also that there is no reason yet to believe that the Euro economy is ready to break into a sequence of sustainable growth any time soon car manufacturers will likely now need to provide their own price incentive improvements just to standstill. It hardly helps that consumer sentiment has also been sharply hit by the raft of sovereign debt concerns all over the Continent and that the Euro in particular has lost value. Equally true, the UK which actually managed an increase of 13.5% in sales last month will from now on be hit by concerns that as taxes such as VAT are likely to rise in next weeks budget. Indeed, half decent sales last month are merely the result of sales having been brought forward ahead of the budget.

For now it seems pretty clear to me that bar for the odd niche producer such as Jaguar Land Rover that car sales in Europe are likely to continue falling back over the next three to six months. True, from a global perspective car sales are still increasing. For instance, Volkswagen Group (VW, Seat, Skoda, Audi and others) which had seen a 7.6% decline in European sales last month managed to post a worldwide increase in sales of 18% – some 2.94m units being sold worldwide in the first five months of the year. But while VW is not alone amongst the European producers with half decent global sales the fall off in European market sales in what is regarded these days as the domestic home markets is worrying. We suspect that while European carmakers will over the next few months be adding more price incentives that if the situation continues to deteriorate that we could even see the hint of a return in extended summer close down periods. .