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Solid European Sales Growth Expected Again In 2016

Solid European Sales Growth Expected Again In 2016.

That Might Include Harsh Price Competition, But What’s New?

“The problem is, how does Europe get better from here, and do we believe it will remain this way”

West European car sales were strong in 2015, and forecasts for 2016 expect a modest improvement.

Despite the mayhem on world stock markets following the Chinese meltdown, forecasters for Europe’s prospects are remarkably sanguine given that stock market weakness is sometimes a leading indicator for the economy signalling recession, or worse.

According to Hans-Werner Kaas, senior partner and head of the McKinsey Automotive & Assembly practice in Detroit, after the Great Recession which started in 2008 there is pent-up demand in Europe of between 16 and 18 per cent, while consumer credit and consumer confidence remain strong.

Price pressure
“In 2016 sales will grow between three and four per cent (in Western Europe). In general, I’m actually more confident and optimistic about the European market and I expect interest rates to remain stable. But the big question for me is the competitive pressure on prices,” Kaas said in an interview.

LMC Automotive also expects a modest improvement in 2016, with a gain of 3.0 per cent after last year’s 9.0 per cent rise to 13.2 million.

“We continue to forecast further solid growth this year. The economic backdrop is expected to continue to improve in 2016, which will support ongoing recovery in the Italian and Spanish markets, with scope for further improvement in France. The bigger markets, Germany and the U.K., are expected to provide less support for regional growth over coming years, as they are already around stable medium-term levels,” said LMC Automotive analyst Jonathan Poskitt.

Fitch Ratings finds itself in the middle of the conventional wisdom.

“We expect new vehicle sales to increase by about three to four per cent in Europe in 2016. However, we believe that pricing will remain under pressure as the economic recovery remains fragile in some markets,” Fitch analyst Emmanuel Bulle said in a report.

Complacent
There are some doubters out there though.

Bernstein Research analyst Max Warburton worries that European volume growth might disappoint, while Morgan Stanley’s Harald Hendrikse said European expectations remain complacently high.

“European Central Bank quantitative easing, high one per cent GDP growth forecast, and strong European car sales have kept investors bullish on Europe for 2016, we believe. The problem is, how does Europe get better from here, and do we believe it will remain this way,” Hendrikse said.

No doubts though for Evercore ISI analyst Arndt Ellinghorst.

“We believe that given leading macro indicators such as consumer confidence and unemployment declines, the European sales outlook continues to be strong. A simple analysis of annualizing just the last three to four months of European sales would lead to four per cent European sales (growth),” Ellinghorst said.

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