July 20, 2009. Copyright 2009, Graphic News. All rights reserved

European car sales accelerate, but beware the false dawn
By Neil Winton

LONDON, July 20, Graphic News:  West Europe's car sales rose 4.6 percent in June to 1.3 million, but don't be fooled. Far from heralding the green shoots of economic recovery, some experts warn that the industry faces the dreaded "W" shaped recession.

In other words, things are going to get worse, again, before they get better.

According to statistics from Britain's Automotive Industry Data (AID), car sales were boosted by government scrapping incentives in Germany, France and belatedly, the UK. German sales in June rocketed 40.5 percent, and for the first half rose 26.1 percent. Germany is Western Europe's biggest market for cars, accounting for almost 30 percent of sales.

The trouble is though that although scrapping incentives (€2,000 in Germany if you dump a nine-year old-clunker with the manufacturer often chipping in a similar amount) boost sales temporarily, this also steals sales from the future. So in 2010, sales are likely to drop sharply. It also means that car sales have been skewed to the cheaper end, and few are actually made in Europe. For instance Hyundai of South Korea increased its sales across Europe by 32 percent in June and 19.5 percent in the first half of 2009, according to AID.

Luxury manufacturers like BMW and Mercedes' sales fell close to 20 percent in the first half. Not many buyers are cashing in old bangers and rushing to upmarket car dealerships.

Market leader VW of Germany, which also owns Audi, Skoda, and Seat, saw its West European sales rise 12.4 percent in June, but for the first half they slipped by 0.9 percent. Fiat of Italy was the best performer among the mass car manufacturers, raising sales by 13.5 percent in June, although for the first half it reported a 1.6 percent decline. Renault of France's Romanian subsidiary Dacia, which makes cheap and cheerful little cars, saw its sales rise in June to 21,500 from 7,600 in the same period last year. This is a reminder that sales are being artificially boosted, with miniscule profit margins, if any.

West European sales in the first half of 2009 fell 9.8 percent to just under seven million, AID said.

For all of 2009, automotive consultancy J.D.Power believes sales will slip about 1.7 percent to 13.33 million, after 2008's huge, 8.4 percent drop. When national scrapping schemes expire -- Germany's is expected to end later this year -- sales could take a dive close to 11 million next year, J.D.Power said.

Economists have been arguing about how Europe might eventually pull out of a recession. Many believe this might be short and sharp, and represented as "V" shaped, or at worst "U" shaped. Some speculate it might be deep and prolonged, or "bath-tub" shaped. Investment bank Citicorp, in a report headlined "A W-Shaped Auto Recovery in Europe?" suggests any recovery in car sales might be a false dawn, and soon plunge back down again.
/ENDS