January European Car Sales

Summary

Car sales were up by over 2% in January 2006 with markets suffering less post-incentive pain than during the first month of last year.
– The German market was a prime example of this though results in France and Italy also pointed towards an encouraging start to the year, despite what are, at face value, low selling rates.
– The Spanish market continued to enjoy very strong demand. But UK sales dipped dramatically after a spectacular December.

The action by Europe’s car makers to reduce inventories in 2005 resulted, as we saw last month, in slightly less vigorous incentive activity in December. In fact, we were a little surprised by how much lower the selling rate was in December 2005, especially when one compares with the result in December 2004. But December’s loss has proven to be January’s gain as payback proved to be less severe. (The special case was of course the UK, where a company car tax change resulted in very strong December sales and a poor January result.) The preliminary selling rate of 14.3 mn units/year in January is therefore a positive footing on which sales in the remainder of 2006 will progress. We now expect a slight upshift in full-year sales in 2006.
West European Car Sales

In Germany the January result represented a fairly solid performance with a selling rate at almost 3.2 mn units/year. This would, of course, be a rather disappointing outcome for a whole year, but the January outcome, which has become decidedly weak in recent years in a number of countries as a result of excessive activity in December, marks a much stronger start to the year than did January 2005. We remind the reader that a planned VAT increase is likely to produce a significant pull-forward in sales at the end of this year. We therefore expect the German market to growth even more quickly in 2006 than it did in 2005. The early months of 2007 will, of course, suffer as a result.

The UK-market selling rate tumbled from the huge December figure: December itself was inflated strongly by a change in company car tax that pulled sales forward. January suffered correspondingly. Sales to businesses will probably recover over the next few months. However, retail sales continued to struggle alongside the turbulence in company car sales and we remain concerned that weakness in the consumer outlook will continue to hamper the retail market. A further decline of 3-4% is anticipated this year.

The selling rate in Italy fell back, somewhat predictably, in January as incentives which produced such a strong December result were relaxed. But the average selling rate of the two months — perhaps the quickest, if not the most scientific, way of assessing underlying demand during such periods — came in at over 2.5 mn units/year. This is a strong result given the rather poor level of both consumer spending growth and consumer confidence. And, of course, in year-on-year terms, the January result looks impressive. Incoming orders, however, imply a rather less dynamic outlook, at least in the short term, especially when one considers that order inventories have clearly been reduced by the recent strong sales activity. We expect only a small increase in sales in 2006.
In France sales were in line with expectations for a stable month — the selling rate, at approaching 2.1 mn units/year, nudged upwards only marginally from the December result. It was clear from the market calmness in December (i.e. no excessive use of incentives) that there was not going to be very much incentive payback in January. As we look forward to the remainder of 2006 it is also now clear, with macro-economic conditions improving slowly and a reasonable start to the year in January, that the market may gain ground again, with a similar growth rate to that in 2005.

In Spain the January result once again made the smallest of the big five West European car markets appear to be the most dynamic. Seasonally adjusted annualised sales held firm with the very strong December level, if not quite matching it — the near-1.7 mn units/year selling rate was a repeat of last year’s good start to the year, though the actual number of vehicles sold in January was slightly lower than in the same month of 2005. The outlook for 2006 is good, with another robust economic performance expected.

Among the smaller markets, Belgium fared well while sales continued to fall in Greece.

Source: J.D. Power Automotive Forecasting