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Western European car sales start 2018 strongly with 5.6% y/y increase in January – forecast
The Western European passenger car market started 2018 in a strong fashion with big rises in Germany and Spain.
IHS Markit Perspective
Implications: The Western European passenger car market enjoyed a strong uplift in January with a 5.8% y/y increase to 1,170,166 units, according to the latest IHS Markit forecast.
Outlook: The Western European market will remain stable in 2018 according to IHS Markit's forecast of 14.4 million units, but the macro and political potential for volatility remains high
The Western European passenger car market has recorded a very strong start to 2018 with a 5.8% year-on-year (y/y) increase to 1,170,166 units, with the German and Spanish passenger car markets leading the way with accelerated rises, according to the latest IHS Markit Western European forecast. The long-term season annually adjusted rate (SAAR) trend continues to trend upwards.
The German passenger car market made an unexpectedly strong start to 2018 with an 11.6% y/y rise in sales to 269,429 units during January, according to the latest data released by the Federal Motor Transport Authority (Kraftfahrt-Bundesamt: KBA).
The passenger car market in France has increased during January 2018. according to data published by trade association the Comité des Constructeurs Français d'Automobiles (CCFA), with sales rising on a standalone basis by 2.5% y/y to 156,851 units.
The Spanish passenger car market has had a strong start to the year, growing by 20.3% y/y during January, according to the latest data published by the Spanish Association of Passenger Car and Truck Manufacturers (Asociación Española de Fabricantes de Automóviles Turismos y Camiones: ANFAC). Registrations during the month have grown from 84,515 units to 101,661 units.
The Italian passenger car market had a far more modest opening, with its registrations in January 2018 growing by 3.4% y/y to 177,822 units, according to data published by the National Association of Foreign Vehicle Makers' representatives (Unione Nazionale Rappresentanti Autoveicoli Esteri: UNRAE).
The UK passenger car market has opened its account for 2018 with a decline, falling in January by 6.3% y/y according to the latest data published by the Society of Motor Manufacturers and Traders (SMMT). Registrations fell from 174,564 units to 163,615 units. Registrations by private customers were a big drag on performance, with sales falling 9.5% y/y to 69,416 units. However, fleet registrations dipped by 1.8% y/y to 89,513 units. Furthermore, business registrations tumbled by 29.7% y/y to 4,686 units.
Outlook and implications
The German passenger car market made a somewhat stronger-than-expected start to the year, aided by a positive calendar effect and other factors relating to the ending of diesel trade-in discounts and incentives. As IHS Markit's head of Western Europe forecasting, Martin Benecke, observed, "It seems that a lot of people are using the current diesel trade-in incentives, due to the ongoing diesel discussion around the potential city centre diesel bans (for example, if you trade in an old diesel car and buy a new Golf you get a discount up to 45%). Most of the diesel trade-in incentives ended on 31st of December, so a lot of people bought the vehicle in December but the registration was then in January." It will be interesting to see how the debate over diesel bans pans out and how it affects the market as we move through 2018. However, as the anti-diesel narrative stays part of the public discourse and continues to be reported on adversely in the media, there appears to be no sign that diesel will make any sort of rally in the short term. Indeed, the figures in January brought yet more doom and gloom for diesel and its proponents. The share of gasoline (petrol) registrations in the German passenger car market rose to 61.8% last month, with overall gasoline sales volumes rising by 32.1% y/y on an overall basis. By way of comparison, diesel sales fell by 17.6% y/y in the month and their overall share stood at exactly one-third of the market, which was actually very marginally better than diesel's share of the market in December 2017. IHS Markit's German sales forecast for 2018 has increased to 3.49 million units from 3.44 million in 2017.
As noted above, it has been an exceptionally positive start to 2018 for the passenger car market in Spain, and this month's volumes are the best in a decade. This has been helped by a 15.6% y/y gain among private customers, taking registrations to 52,253 units. However, there were even bigger gains among other customer groups: registrations of company cars have grown by 26.4% y/y to 33,189 units while rental car registrations have increased by 24% y/y to 16,219 units. The latter has been caused by rental companies bolstering their fleets in preparations for the forthcoming tourist season which is set to begin in earnest at the end of March coinciding with Easter. The overall results are said to be above what was expected by the local trade association and its affiliates, and is said to be partly underpinned by the ongoing economic recovery that is taking place. GDP is forecast to have reached 3.1%, according to IHS Markit, before growing a further 2.3% in 2018, as well as retreating unemployment. IHS Markit anticipates another year of growth for the passenger car market in 2018, with registrations expected to grow by around 5.1% y/y, and more gains coming towards the end of the decade and possibly beyond. However, we do not see the market rising to the levels of the previous decade.
The growth in the Italian market has been far weaker, and UNRAE also notes that it benefited from an additional working day, which suggests that without it would have been flat or even gone into retreat. It also noted that the month has also been helped by marketing promotions by OEMs and dealers, as well as the use of self-registrations. Data released by UNRAE seem to underline this. Private registrations have fallen by 6.3% y/y to 102,168 units, while registrations of vehicles for short-term rentals have jumped by 26.2% y/y to 16,379 units, and long-term rental registrations increased by 9.3% y/y to 24,494 units. Furthermore, company car registrations have increased by 25.7% y/y to 36,126 units. Some of the vehicles in the latter two groups may be helped by some overhang from budgetary measures, registrations of orders made before the end of 2017 can now take place until the middle of 2018. Michele Crisci, president of UNRAE has said, "It will be interesting to evaluate how the demand in 2018 will behave in the face of the lack of 'superammortamento' in the business sales channel." He also voiced concern as to how dealer pre-registrations will be disposed of. Nevertheless, he went on to say that he expects passenger car demand to grow by 1.3% y/y during 2018 on the back of favourable macroeconomic indicators and the ongoing need to renew the passenger car fleet. IHS Markit is a little more optimistic and anticipates further gains during 2018, with an improvement of 4.1% y/y. More gains are expected until 2020.
Following a gain of 5.1% y/y over the course of 2017, the French light-vehicle market has opened its account for 2018 with this positive performance, which is likely to lead to some optimism over its performance for the full year. Underlying economic factors look set to be supportive of this, with indications that the fourth quarter of 2017 remained strong and that this is set to contribute to a 1.9% increase in French GDP this year, and IHS Markit expects this rate of growth in 2018 as well. We also expect labour market conditions to improve in 2018, despite the surprising increase in the unemployment rate during the third quarter of 2017, as the economy is projected to grow above potential, and the unemployment rate should gradually move downward. Moreover, we also estimate that the labour reforms implemented in recent years, which have focused on injecting some flexibility into the system and lowering non-wage labour costs, should help boost employment creation over the medium term, although this improvement will be gradual. An improving labour market, alongside muted inflation, is expected to support private consumption spending, which is the traditional driver of the French economy. IHS Markit anticipates that France's light-vehicle registrations will see a gain during 2018, although the rate will be reduced. Passenger car demand is expected to be up by about 1.1% y/y. Registrations of LCVs under 6 tonnes are expected to grow by 2.6% y/y. Further, modest growth is anticipated in both categories during 2019.
Although the decline in the UK this month is less severe than some of those at the end of 2017, it seems to have been partly helped by one additional working day versus January 2017, typically worth an extra 5% y/y. This certainly indicates that the growth in the UK market is for now over after a couple of years of record sales after a sustained period of gains ended during 2017. Although this had been anticipated by IHS Markit, it has taken place during a period in which the economy has lost some momentum and is set to face further struggles. We expect domestic demand to remain soft through 2018. In particular, consumer spending growth is expected to come under further pressure as purchasing power is sharply diluted and labour markets are likely to start to soften soon. Furthermore, according to our January forecast, consumer price inflation is forecast to average 2.9% in 2018, and earnings growth is seen limited by companies clamping down on workers’ pay to contain costs in a challenging environment. Weakened confidence and labour market slack will dilute workers' ability and willingness to push for pay increases, despite higher inflation. Business confidence also remains under pressure with the UK in the process of negotiating its departure from the European Union (EU). This has heightened caution in capital expenditure, and to a lesser degree, employment. Reduced growth prospects will dilute the need for companies to invest to add capacity. Nevertheless, the desire/need to boost productivity will provide some incentive for business investment. For the full-year IHS Markit is forecasting that WE sales will stagnate in 2018, rising only very marginally to 14.4 million units.
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The above article is from AutoIntelligence Daily by IHS Markit. AutoIntelligence Daily provides same-day analysis of automotive news, events and trends. Get a free trial.
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