In an article on 24 April 2014, the Financial Times reported that “Renault said Europe will see sales growth of between 2 and 3% over the year, a modest rebound from 2013, which was the worst car market for two decades.” This is in line with the general outlook for car sales in Europe in 2014 but back in March, I predicted that West European car sales would climb 5% in 2014; from 11.6 million sales in 2013 to 12.1 million in 2014 and so I thought it worthwhile to elaborate on why Euromonitor has adopted this apparently bullish stance.
Although Euromonitor International projects just 1.3% GDP growth in Western Europe in 2014, this follows on from a contraction of 0.2% in 2012 and an increase of just 0.3% in 2013. Furthermore, the number of European households that can afford a new car, ie those with an annual disposable income over US$25,000, is expected to climb by 0.9% in 2014. This may not sound significant but it is actually the highest growth rate since 2007 and in itself means that the pool of potential new car buyers is expected to be 1% larger than it was in 2013. This must also be seen in the context of declining savings ratios in the key European economies, largely as a result of protracted low interest rates, and this is naturally a positive for the car sales outlook.
The inclination of consumers through the financial crisis has clearly been to save rather than spend and this has naturally had a major detrimental impact on demand for big-ticket items, such as cars. This becomes especially evident when you contrast historic new car sales against the number of West European homes with an annual disposable income over US$25,000, which actually remained fairly static throughout the financial crisis. This chasm between new car sales and the pool of potential buyers suggests that over 10 million new car sales have been lost since 2008 which naturally bodes fantastically well for replacement demand.
Finally, we must of course not forget consumer confidence, which hit its highest level in nine years in the UK in February 2014 for example. However, there are marked improvements across Europe – crucially, in all the big 5 countries but also in Portugal and Greece too. The combination of all these positive factors is key in releasing pent-up demand that has been built up in recent years and hence why Euromonitor projects 5% growth in sales in 2014. April’s sales results will inevitably be comparatively weak as there is one less working day than in 2013 because of the later timing of Easter but our 5% forecast still stands whereas I envisage announcements of upward forecast revisions elsewhere.
Consumer Confidence Index in Key West European Markets, January 2007 to March 2014
Source: Euromonitor International