European auto markets head in a new direction

Consumer demand


EU autos Oct13The European auto market continues at 20-year lows, with sales down 4% in January – September.  Whilst September’s sales appeared stronger, up 5% versus 2012, this was only due to Spain and the UK.  Spain boosted volume by 10k due to a €2.7k ($3.7k) government hand-out for people trading in an older vehicle.  Whilst UK volumes were up 40k due to a credit boom in car leasing.

The chart above highlights the key issue, that the profitable ‘middle ground’ has now disappeared.

For 25 years, auto manufacturers competed on the basis of adding features such as air conditioning, air bags, central locking, navigational aids etc.  This added enormous value, without greatly increasing costs.

But now, all the major manufacturers are steadily losing volume and seeing profits disappear:

  • Their volumes were all lower January – September, whilst margins were under pressure due to discounting
  • Only 2 brands are showing growth, due to companies taking a different approach
  • Renault’s Dacia range has seen volume jump 21% to 211k sales
  • Tata’s Jaguar has seen volume rise 17% to 21k

Dacia is focused on the low-cost end of the market, with selling prices starting at €7k.  It also manufactures on a ‘design to cost’ basis, allowing it to achieve EBIT margins of 6% – twice those of Renault’s other models.  Jaguar is focused on the niche high-end, where it is providing high perceived value for customers.

These trends are now beginning to accelerate.  Europeans, like Americans, have been driving fewer miles/year since the mid-2000s.  The BabyBoomers who led the demand surge in the SuperCycle are now retiring, so their work-related mileage is reducing.  In addition, as Leigh Gallagher shows in her excellent book ‘The End of the Suburbs’, Boomers are increasingly moving back to the cities to be close to friends, family and health/support facilities.

At the same time, as the blog noted earlier this year, BMW research shows car ownership in the critical 20-39 age group has reduced in most of the 12 countries it studied.  High levels of youth unemployment, plus the high cost of insurance, are part of the cause.  But the glamour of car ownership now seems to be disappearing, whilst online services such as Facebook are providing a low-cost way of keeping in touch.

This highlights a key issue for companies’ future planning.  In the past, it was assumed that demand for cars would always increase.  But now it is becoming clear this judgement confused demand for mobility with demand for cars.

Similar mistakes have been made in the past, of course.  Older blog readers may remember using slide rules in the classroom and the workplace.  But this universal tool has now disappeared, as it turns out the market was for calculation instead.

Markets in the future will thus look very different from those of the past, as we discuss in Boom, Gloom and the New Normal.  Companies who adapt to these new developments will likely do very well indeed.  But companies who fail to change may find life very difficult indeed.


China's auto sales rise as bank lending booms


Autos are now the largest single manufacturing industry in the world.  Not only...

Learn more

Grangemouth closure could force downstream converters to shut


  One never wants to see a major petchem plant shutdown, especially one wit...

Learn more
More posts
Hertz goes bankrupt as non-essential consumer demand disappears

The US Federal Reserve has now spent $7tn bailing out Wall Street. But it couldn’t save the 10...

Smartphone sales head into decline as affordability becomes key

The smartphone sales decline accelerated in Q1, as Strategy Analytics report: “Global smartpho...

China’s plastic ban and recycling launch marks end of ‘business as usual’ for plastics industry

Paradigm shifts start slowly at first, and it is easy to miss them. But then one day, they suddenly ...

Automakers face stiff headwinds in big emerging markets

Brazil, Russia, India and China disappoint as manufacturers face investment demands of EVs © Bloomb...

Portugal shows the way to climate neutrality by 2050

“If you don’t know where you are going, any road will do”. The Irish proverb’...

The next billion phone users will be buying $10 smart feature phones, not $1000 iPhones

Smartphone sales plateaued in Q3, down 9% since Q3 2017’s peak of 1.55bn, as the chart shows....

Companies ignore the Perennials 55+ generation at their peril

Nearly a third of the the world’s High Income population are now in the Perennials 55+ generat...

Auto markets set for major disruption as Electric Vehicle sales reach tipping point

Major disruption is starting to occur in the world’s largest manufacturing industry.  Hundred...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more