Europe's Car Sales Rally, Thanks To Discounts, Dealer Action

Demand surged 29 percent in Spain because of government-backed discounts of as much as 2,000 euros ($2,700) on vehicle trade-ins. Dealer rebates in Germany were the highest in three months. The European market is bottoming out and the next months will probably see a slow improvement, said Frank Schwope , a Hanover, Germany-based analyst with NordLB. After refraining from buying a new car because of the economic crisis, vehicles are now so old that they cant be repaired any more and need to be replaced. September European sales at Renault, based in the Paris suburb of Boulogne-Billancourt, rose 22 percent, while Stuttgart, Germany-based Daimler, the third-biggest maker of luxury vehicles , reported a 12 percent increase. Demand at regional market leader Volkswagen AG (VOW) climbed 5.8 percent. Improving Market The industrywide gain in September, which included one more working day than a year earlier, was the biggest since a 7.8 percent jump in August 2011 and the third for this year. Still, deliveries — which include European Union members as well as Switzerland, Norway and Iceland — are set to contract in 2013 for a sixth consecutive year and hit a two-decade low. The situation is clearly improving, Carlos Da Silva, a Paris-based analyst with IHS Automotive, said in an e-mail. Europe is not in brilliant shape, yet the underlying trend of the market is calling for a certain dose of optimism. Among the regions five biggest markets, Spain posted the largest increase. Sales rose 12 percent in the U.K., where consumer confidence was at a six-year high in September, and climbed 3.4 percent in France . Registrations fell 1.2 percent in Germany, Europes biggest economy, and 2.9 percent in Italy . Dacias Surge Renaults deliveries were helped by a 40 percent surge at the no-frills Dacia brand, which entered the U.K. in 2013.

Europe Car Sales Rise on Spain Incentives

While sales rose 10.9 percent in Latin America and the Caribbean, 5.1 percent in North America, they grew only 1.3 percent in Africa, Eastern Europe and Turkey and 0.6 percent in Asia Pacific – markets whose growth drinks firms have been relying on as austerity-hit Western Europe struggles. Sales in Western Europe fell 1.1 percent. Several analysts said Diageo’s results were below consensus expectations for an overall sales rise of 4 percent. Investec analyst Martin Deboo said the results for Diageo, were maker of Johnnie Walker whisky and Smirnoff vodka, fitted his sell thesis – “that emerging markets are set to make life difficult for Diageo for a while”. Both Diageo and France’s Remy Cointreau cited a Chinese government crackdown on gift-giving as a drag on sales there. Remy, which generates about 40 percent of its operating profit from cognac sales in China, said wholesalers were reducing inventories after sales fell short of expectations during the Chinese New Year. The maker of Remy Martin cognac, Cointreau liqueur and Mount Gay Rum said revenue declined 5.3 percent on a like-for-like basis to 294.4 million euros ($397.2 million) in the three months to Sept. 30, its second quarter, compared with a 2.3 percent decline in the previous quarter. Sales of Remy Martin cognac fell 8.3 percent like-for-like, compared with a 12.9 percent slump in the first quarter, and the firm said China would continue to weigh on sales in the coming months.. A recent weakening of various currencies against the U.S. dollar has also hit results. Diageo, which made a net profit of 2.59 billion pounds in the year to June 30, said that, based on spot rates, foreign exchange factors would reduce 2014 operating profit by 165 million pounds.

WRAPUP-Americas help Europe’s drinks makers offset Europe and Asia

The rally is based on expensive price cutting and manipulated sales data, which will only further undermine the precarious state of most of Europes non-German manufacturers. Car sales may have stopped falling at close to 20 year lows, and forecasts for next year are positive. But much of this improvement has been down to huge spending by the manufacturers on discounts and price cuts, while dealers are being persuaded to buy the excess cars on their lots which count as new car sales. These will eventually be sold on to the public at well below sticker price. The Brussels-based European Car Manufacturers Association, known by its acronym in French, ACEA, ( www.acea.be ) announced today that Western European car sales were up 5.4 per cent in September compared with the same month last year at just over 1.1 million, bringing the total for the year so far to 8.8 million. Thats a fall of 4.0 per cent on the first nine months of last year. Peter Fuss, partner at consultants Ernst & Young Ernst & Young s Global Automotive Center in Frankfurt, Germany, said the recovery in car sales was down to the improvement in Europes economic outlook, with the Euro currency zone pulling out of recession during the second half of 2013. But with factory use down to less than 65 per cent by manufacturers, according to Fuss, this underlines the chronic overcapacity in Europe, which remains unresolved because of pressure from unions and governments to resist rationalisation. The European industry is looking for a bailout along the lines of the U.S. intervention on behalf of bankrupt GM and Chrysler, to allow it to finally shut-down uneconomic factories. But given the financial crisis in the euro zone, this is simply unaffordable. Ernst & Young expects an overall decline of three per cent in Western Europe for the whole year, and only modest growth next year. This growth will continue to be artificial one that is driven by discounts and self-registrations. We estimate it will take at least two years for the market to witness the real sales recovery, driven by replacement demand.

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