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EU auto sales stagnate as unemployment remains near record

Consumer demand
By Paul Hodges on 27-Jun-2014

EU autos Jun14The good news about EU auto sales, as the chart shows, is that they have stabilised above last year’s record low levels:

  • Sales in the January – May period were up 7% (red square) versus 2013 (green line) at 5.4 million
  • Sales in May itself were up 5% versus 2013 at 1.1m
  • Sales have risen in all the major markets so far this year, with France, Italy and Germany up 3%; the UK up 12% and Spain up 16%

However, as the EU auto association note, May’s sales were still “the second lowest result for a month of May since the series began in 2003” – last year being the worst.

The key to the current modest improvement is heavy discounting on price, with Opel, Peugeot and Citroen offering average discounts in Germany of around 25%.

A note of caution was also sounded in Italy, where the head of the retailers federation noted that May sales were down 4% versus 2013.  He also warned that “we think the May number is not a sign of slowdown but of stagnation … no pickup therefore”.

UK sales, which have seen the longest unbroken period of expansion since records began in 1959, are also expected to slow, according to the local auto manufacturing association.  The reason is that payments for mis-selling of payment protection insurance seem to have passed their peak:

  • £14.7bn ($25bn, €18bn) has been paid out by UK banks in one of the great scandals of the UK financial world
  • Consumers were sold insurance in case of unemployment which was almost impossible to claim
  • Average payments have been £3k – £5k, which has often been used as a down-payment for car purchase
  • At its peak, compensation payments were over £500m per month, but are now around £350m/month

The one-off nature of these payments also encouraged UK consumers to lease rather than buy, as the blog discussed in April:

Roughly three-quarters of new cars bought in the UK are paid for under financing schemes.  …This sees owners pay off half the price of the car in monthly instalments over 3 years, before typically trading in the car and its residual value for a deposit on a replacement vehicle.”

A strong EU economy would see incomes rising to support consumer spending.  But sadly, this isn’t happening.  Eurozone unemployment remains near record levels of 12%, and youth unemployment in the wider EU near 25%.

Young people are the key to future levels of car ownership.  And if they can’t find jobs, it is hard to see how they will be able to afford to buy new cars in the future.