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If Consumer Fear Doesn’t Crimp Car Sales, Lack Of Lending Will

Germany Under Pressure Too As Pre-Registrations, Discounts Rise
Non-Germans Face More Years Of Losses

“Savage discounting in France, with PSA and Renault fighting each other – Clios for 40% off list, Twingos for less than Dacias”

Predictions about how far Western European car sales might drop don’t seem to be getting any worse, but the number of reasons why it will be bad are on the increase. And the weakness in sales will go on longer than previously thought, while non-German mass car makers will lose money for the foreseeable future.

Investment banker Morgan Stanley has already cut its forecast to minus 6.5 per cent for Western Europe in 2012, but added another reason why consumers will be staying away from dealer’s lots; the banks will cut back on lending.

“Our economists take the rather dour view that GDP growth in the Eurozone this year will be only 0.5 per cent and our European banks team expects E.U. banks to cut lending by up €2.5 trillion in response to the region’s economic turmoil,” said Morgan Stanley auto analyst Adam Jonas.

“Now given 75 per cent of cars in Europe are bought on some form of monthly payment – that’s a big problem. Our European team expects car sales to be lower for longer and to remain 15 per cent below the prior peak even by 2014. Moreover, Europe should remain loss-making for most big manufacturers for a few more years to come,” Jonas said.

“Most big manufacturers” means those which aren’t German, and includes those with big factories in Germany but aren’t native, like Ford and GM Europe.

Moody’s Investors Service, the U.S. bond rating agency, said Western European sales in 2012 will fall 6.2 per cent.

France the worst
“We anticipate that the steepest declines will be in France – minus 10 per cent – Italy – minus seven per cent – and the U.K. – minus seven per cent. Auto manufacturers in these countries will suffer most from the austerity measures initiated by their governments, as well as a continued challenging economic environment and the subsequent expected fall in consumer spending,” said Moody’s senior vice president Falk Frey.

Moody’s does expect a three per cent improvement in 2013 though.

Although German isn’t mentioned as a candidate for the naughty step, all is not well there either, according to Professor Ferdinand Dudenhoeffer of the Center for Automotive Research at the University of Duisberg-Essen.

“We think the German car market is not so stable as the latest figures show. There are a lot of incentives, the biggest for five years in Germany and about 30 per cent of the sales in the last three months are pre-registrations. Rebates and incentives are pushing these numbers artificially,” Dudenhoeffer said.

All is not well
In December, German car sales rose 6.1 per cent to 244,500, according to AID figures.

LMC Automotive agrees that all is not well in Germany.

“On the face of it, the December 2011 result (for Germany) certainly looks favourable in year-on-year terms, but the market is cooling and consumer confidence has dropped sharply in recent months,” said LMC analyst Jonathon Poskitt.

LMC’s latest report calls for a 5.3 per cent drop in 2012 Western European sales to 12.1 million, with Germany slipping to 3.1 million from 3.2 million the previous year.

Profits are being hit by widespread price cutting across Europe.

“There’s savage discounting going on in France, with PSA and Renault fighting each other – Clios for 40% off list, Twingos for less than Dacias,” John Wormald of consultancy Autopolis said.

Deutsche Bank analyst Gaetan Toulemonde points out that if 2012 sales dive to his predicted level of 12.02 million, down six per cent, this would be 17 per cent below the average of the last decade from 1999 to 2008, and reach 20 per cent below the 2007 peak.


Neil Winton – January 25, 2012

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