Western Europe’s ongoing trend of falling car sales was confirmed this month with the release of the latest new vehicle registration statistics from the European Automotive Manufacturers’ Association (ACEA). Registrations were down by almost 7% in the first half of 2012 (H1 2012) compared to the same period last year, despite record discounts being offered by manufacturers and dealers.
Among the major markets, only the UK and Germany registered marginal positive growth during H1 2012, fuelled by private consumer demand, with strong sales in the small vehicle segment in particular. In Germany, growth in sales was attributable to the relative strength of the economy, as well as self-registrations by OEMs before sale to private buyers.
With the focus of economic uncertainty shifting from Greece to Spain and Italy, a further decline in sales across Western Europe in H2 2012 is to be expected
Contrastingly, the Italian market has fallen significantly, with car sales close to a 30-year low as a result of the dormant economy. Similarly, the lack of consumer confidence and high unemployment levels pushed down vehicle sales in France and Spain by 14.4% and 8.2% respectively in H1 2012, compared to the same period last year. The relative decline in French sales is also partly attributable to H1 2011 sales data being inflated by the scrappage incentives.
With the focus of economic uncertainty shifting from Greece to Spain and Italy, a further decline in sales across Western Europe in H2 2012 is to be expected, with the year likely to end around 5% below 2011 volumes. Manufacturers will probably continue to offer significant discounts over the rest of 2012; however, these discounts create a potential risk of incentivising consumers to advance their purchasing decisions and buy this year instead of next, consequently creating a future crisis – as witnessed in the US over 2008-09.
Shrinking sales also further aggravate the vehicle manufacturing overcapacity problem in Western Europe, particularly for manufacturers in Italy, France and Spain
Apart from the credit crisis, rising youth unemployment (23% across the EU) represents a consumer segment that is unlikely to be able to afford vehicles for some time in the future. The automotive industry must, therefore, look at ways to formulate new affordable mobility propositions.
Shrinking sales also further aggravate the vehicle manufacturing overcapacity problem in Western Europe, particularly for manufacturers in Italy, France and Spain. With vehicle manufacturers already announcing plans to close plants, H2 2012 is also likely to witness government intervention in these countries, although scrappage incentives are not expected to be considered again.
Unlike the 2008 crisis, however, most governments will not be able to intervene into the affairs of the European automotive market. The overall development of the European automotive sector will be driven by pure market regulations and competition on price and product. This may accelerate consolidation among vehicle manufacturers and among suppliers, further reducing the competitiveness of the European automotive industry.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Peter Fuss is Senior Advisory Partner at Ernst & Young’s Global Automotive Center.
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