The Western European passenger car market is forecast for a buoyant March with a gain of 10.3% y/y, according to IHS Markit.
IHS Markit perspective
- Significance: The Western European passenger car market is said to have grown by 10.3% y/y during March, according to IHS Markit forecasts.
- Implications: The different timing of Easter between 2016 and 2017 has been a big driver to the growth during March, but other factors in key markets have also come into play.
- Outlook: IHS Markit is forecasting a slowdown and a consolidation of Western Europe's market in 2017, with full-year sales rising by 1.0% to about 14.17 million units.
Growth in the Western European passenger car market has rebounded during March, according to the latest forecast from IHS Markit. Registrations during the month have grown by 10.3% year on year (y/y) to 1,810,853 units. Its performance this month is largely down to Easter falling in March 2016, and April this year. This has helped maintain momentum in the year to date (YTD), with a growth rate of 7.5% y/y recorded, a gain of 3.893 million units. The strong performance in March has helped boost the seasonally adjusted annual rate (SAAR) rate which now stands at 14.828 million units, the highest level for the region since February 2008.
The German passenger car market posted a very strong result in March with an 11.4% y/y rise to 359,683 units. The market posted a very strong first-quarter result as a result of this gain with sales rising by 6.7% y/y to 844,684 units.
In France, passenger car registrations in March were up 7.0% y/y to 226,145 units. For the YTD, this category has grown by 4.8% y/y to 541,065 units.
The Italian passenger car market had another buoyant month. Registrations increased by 18.2% y/y to 226,163 units. This has helped the market to record gains in the first quarter of 11.9% y/y to 581,819 units.
The Spanish passenger car market rebounded during March with a gain of 12.6% y/y. Registrations during the month increased from 111,511 to 125,600 units. This has helped the market to record growth in the first three months of the year of 7.9% y/y to 307,911 units.
The UK passenger car market has set a new record for monthly volume during March as a number of factors helped bolster this already big sales month due to the biannual age-related number plate change. The number of vehicles registered this month hit 562,337 units, a gain of 8.4% y/y. The growth this month resulted in the UK passenger car market setting a new record for the first quarter. Registrations reached 820,016 units, an increase of 6.2% y/y.
Outlook and implications
As mentioned above, the boost in registrations in many markets this month has come down to the change in the Easter holiday period from March to April during 2017. As a result, many markets benefited from one or two additional working days during March. However, this will be followed by some correction during April with a higher base of comparison coming into play due to the greater number of working days. This may also have an influence on the quarter.
As well as the seasonal factors, the latest figures for the German market are impressively robust and show a market that, while remaining hugely competitive in terms of pricing pressures for the participants, is in strong health. The private market witnessed strong growth throughout the month with a 13.3% y/y uplift, while company and dealership registrations rose by 10.4% y/y. This is being supported by interest rates remaining low and employment remaining high, and a host of attractive new models that are being sold at competitive prices. Going into more detail in terms of the positive macro environment, consumer confidence is only slightly below a 15-year high, and registered unemployment recently declined to a post-unification low of 5.9%. Although real income growth will weaken markedly from around 2.0% in 2016 to below 1.0% in 2017 because of higher inflation, growth in real consumer spending will only weaken from 1.8% to 1.5%. Public consumption growth will slow down but still stay above average because of refugee-related expenses. For the full year passenger car sales in Germany are forecast to rise to 3.40 million units, up from 3.35 million units, which would imply a significant slowdown on the current rate of growth in the first quarter.
In France, after a small decline in registrations during last month, private demand recorded a rebound of over 4% y/y but remained below the growth rate of the market as a whole. However, it should be noted that private demand is not strong regarding all sales brands, with French manufacturers being big beneficiaries of this, but some foreign OEMs are faced with weaker private interest. Tactical sales were significantly up driven by a high level of activity at the end of the first quarter to achieve bonuses. Furthermore, new models recently launched were pushed in to showrooms for demonstration purposes and bring in traffic. The rising French rental market has also been reflected in March as registrations were up by about 14% y/y. From a macroeconomic perspective, short-term indicators suggest growth is likely to run at about 0.3–0.4% q/q during the first quarter of 2017. However, IHS Markit expects the economy to lose some momentum during the second quarter. We expect gradually rising inflation – it stood at a 49-month high of 1.3% in January and remained at that level in February – to limit households' purchasing power and, therefore, private consumption growth. Moreover, despite the improvements in recent months, growth is unlikely to be strong enough to drive a marked reduction in the unemployment rate, which is estimated to have averaged 10.0% in 2016. Despite the expected increase in activity, investment spending will be limited by a muted recovery. Moreover, we expect uncertainty regarding the shape of the next government following the elections in May/April 2017 to hurt investment, although this is likely to be limited, and investment should recover following the elections. On a positive note, credit conditions are expected to better support investment. IHS Markit currently anticipates that France's passenger-car demand up by about 2.7% y/y to 2.07 million units.
In Italy, the extension of the temporary budgetary measures known as superammortamento, which allow Italian companies and individually owned businesses to account for greater depreciation rates on new vehicles within the existing deductibility limits. This was directly reflected in the number of company cars registered last month rising by 38.9% y/y to 39,381 units, while long-term rental contracts – another method used by business customers – rose 24.5% y/y to 30,575 units. Private registrations increased 5.4% y/y to 125,237 units, although this is unlikely to have been helped by the level of OEM incentives available a year ago. Furthermore, the change in the timing of Easter to April during 2017 had another positive effect, with vehicle rental companies bolstering their fleets in preparation for this vacation period. In this market, there has been a 50.6% y/y increase in short-term rentals to 31,925 units. As for the economy, it is expected to be on course to make further progress during the first quarter of 2017. Still, the growth outlook for the remainder of 2017 faces headwinds, and brittle confidence has pushed back our previous growth narrative of continued consumer spending gains. Nevertheless, there are some offsetting positive factors. The key development is the euro retreating sharply in the second half of 2016, with further losses likely during 2017 and early 2018. Clearly, a weaker euro will relieve some of the pressure on Italy's export market shares from high unit labour cost growth and increased global competition in Italy's areas of specialisation. IHS Markit anticipates that Italian passenger car registrations will grow by around 5.0% y/y to 1.95 million units this year.
As for the Spanish market, growth has come from demand for company cars, the number of which has grown by 18.0% y/y to 33,200 units. Surprisingly, the market for private customers rose 11.8% y/y to 57,078 units, particularly in light of the end of the Plan PIVE scrapping incentive in the middle of last year. The market for rental cars has also be boosted by the change in the Easter holiday, with growth standing at 9.3% y/y to 35,322 units for the month. From a macroeconomic standpoint, there is a continued resilience in the economy to the domestic political risks, the fallout from the Brexit vote, and continued deleveraging by both consumers and firms. The main upside appears to be stronger than expected employment growth stoking a firmer recovery in household real incomes, allowing consumers to shrug off troubling political uncertainties. However, despite moderately better than expected real GDP growth in the second half of 2016, IHS Markit still expects the recovery to lose some momentum in 2017–18. Near-term growth prospects are likely to be hit by diminishing pent-up demand, the impact of rising price pressures on household purchasing power, and the start of the Brexit process (although less severely than previously anticipated). We anticipate more modest growth in the Spanish passenger car market this year, with an increase of over 2.0% y/y to around 1.2 million units.
As noted, March is traditionally one of the two biggest selling months of the year for the UK passenger car market – along with September – due to the age-related number plate changes taking place during these months. However, as well as the number of working days, another factor has come into play with customers pulling forward purchases to beat new vehicle excise duty (VED) tax rules introduced the following month. Gasoline (petrol) or diesel cars producing over 1 g/km of CO2, and alternative powertrain vehicles producing over 51 g/km CO2 will be liable for a VED charge for the first 12 months. Following that, vehicles which had previously been free will also be liable for the flat VED of GBP130 for alternatively fuelled vehicles and GBP140 for gasoline or diesel. Electric vehicles (EVs) will remain free however, although they will not escape the new surcharge of GBP310 applied to all passenger cars priced at over GBP40,000, for which drivers will be liable over the first five years. This seems to have spurred registrations of alternative fuel vehicles (AFV), which grew by 31.0% y/y during the month to 22,818 units. Furthermore, fleet- and business customers were out in force, registering 261,930 units, up 12.6% y/y, and 26,656 units, up 11.9% y/y, respectively. The pull forward in registrations caused by this change in VED – including dealers pre-registering vehicles – could well hit the market performance in the coming months though. IHS Markit expects that sales will soften somewhat during the year. We anticipate that the passenger car market will fall by around 5.0% y/y to around 2.56 million units. Further declines will come before the end of the decade as the recent boom unwinds and uncertainty with regards the triggering of Article 50 of the Lisbon Treaty which will start the Brexit process begins to solidify. Nevertheless, even at that point, we see that it will still stand broadly around the average pre-global economic crisis level.
On a combined basis IHS Markit is forecasting a slowdown and a consolidation of Western Europe's market in 2017, with full-year sales rising by 1.0% to about 14.17 million units.
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