March European Car Sales

– The seasonally adjusted annualised selling rate for March stood at 14.8mn units/year, the incentive spike seen a year earlier not so evident one year on.

– The selling rate in Germany picked up, although can still be considered artificially low given short-term factors holding back registrations.

– The French and Spanish car markets posted fairly solid, if unexciting, monthly totals, while Italy continued its strong start to the year.

– In a key month for the UK, registrations were a little on the light side.

While registrations in Western Europe for March were year-on-year up well, the picture is slightly different when accounting for the extra working days in the most recent month (Easter falling later this year). In the face of strikes and bad weather, the German market might be considered as performing relatively well. French sales appear less incentive-driven so far this year than last with this, and the Spanish market, posting reasonable performances. In the UK, sales were fairly lacklustre given that manufacturers were keen to stimulate these through incentives in this key month, highlighting the underlying weakness in demand. At 14.8mn units/year, the selling rate for March is fairly representative of where we expect the full year market to end up – this a little higher than for 2005.

In Germany, the selling rate picked up in March from February – for the first three months the average selling rate was a little under 3.2mn units/year. This relatively weak start to the year can be explained partly by the poor weather conditions the country has faced as well as public sector strikes, these closing some registration offices. On the plus side for the market, the weather should soon improve and the last quarter has seen a more positive consumer outlook. We reiterate our expectation that the 2006 full year will see the market up in Germany, primarily due to the pull-forward in sales as a consequence of the planned VAT increase in 2007.
In the UK, March, an important month owing to it being one of the two months of the year in which there is a registration plate change, registered a selling rate of 2.44mn units/year. Year-on-year, the monthly registration total was lower even before adjusting for the extra working days, with business (as opposed to private) the reason for this year-on-year March fall. Manufacturers were keen to stimulate the market through incentives in a key month in the UK, but with the market unable to break the 2.45mn units/year selling rate, this is somewhat a concern. We maintain our expectation of 4-5% contraction in the market this year.

The Italian market is off to a decent start so far this year, with the average selling rate for the first three months standing at 2.35mn units/year. To establish where this strength relative to last year is coming, one probably needs to look beyond the weak economic fundamentals (even though positive signs have recently come from both business and consumer confidence being higher), and consider product renewal. Fiat, the key group in Italy, has recently been in the process of refreshing its model line-up (the Grande Punto the most important of a number of new vehicles) and with the Italian vehicle producer taking around 28% of domestic car sales for 2005, new products from it are bound to have an impact on overall market volume. For the full year, the market should manage a 2-3% increase on last year.

The French market’s selling rate of just over 2.0mn units/year in March implies a stable if unexciting environment – the raw monthly registrations total was somewhat weaker than for March 2005, although with spikes in the last month of each quarter in 2005 we judge incentive activity was a little stronger last year, and so less comparable. We currently view the French car market in line for another expansion this year (1-2%), helped by improving macroeconomic conditions. A boost should come with new government employment incentives, although these are obviously not meeting with universal approval among the French people, and with a potential knock to confidence from this public backlash, there is certainly some downside risk to our full year expectation.

Just looking at the raw data for Spain, March 2006 would be viewed as impressive compared with the corresponding month in the previous year (up 8.9%). However, when viewing these numbers it must be borne in mind that March of last year included holidays associated with Easter whereas this year Easter falls a few weeks later, in April. A cursory glance at the selling rate (which takes into account this working day effect) tells a slightly different story of a relatively weaker – although still solid – month this year over last. The rate for last month stood at 1.62mn unit/year, about where we would expect the full year market to end up and only a little off the pace of its current record year of 2005, as the market continues to benefit from a favourable economic backdrop.
A glance at the smaller markets reveals that Belgium continues its much better start this year, with the Netherlands also making good progress.
Jonathon Poskitt (jposkitt@lmc.co.uk +44-1865-207052)