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Bounce-back – Europe

There appears to be a clear difference between the recovery in the new and used car sectors across Europe. Used car sales have been fast out of the blocks, while the new car sector is lagging behind. The trend can be pointed to two factors; consumer confidence and distribution as OEMs production get back up to speed.

The Used Market

Used car sales data published by Indicata cover 13 countries. As lockdown has eased, the combined total sees these 13 down only 17% year-on-year and in May that fall was only 9%. It is important to add that while most of Europe’s dealers had re-opened in May, the major UK market had not.

Step forward to early June used car indicators and the positive trend continued. Across the 13 countries assessed, sales were more than 10% higher in early June than they were prior to the Covid-19 pandemic starting in January and early February.

There has been a clear trend towards petrol, hybrids and electric cars ahead of diesels in the majority of countries and older cars between six and nine years of age are also very popular.

It appears that dealers are being very cautious with stock replacement as they watch cashflow and wait to see if the early promise is sustained. Across Europe, dealers have an estimated 340,000 fewer used cars on their forecourts compared with the pre-lock-down period.

Source: Indicata Coronavirus Market Watch June 2020

The New Car Market

New car sales showed only a modest recovery in May, according to data from the European Automobile Manufacturers Association (ACEA).

Passenger vehicle registrations in the European Union, the European Free Trade Association and the UK fell 57%. While that is the worst May since ACEA started tracking the data in 1990, it was an improvement over the 78% fall in April.

ACEA which has revised its 2020 forecast for passenger car registrations down by approx. 25%. This decline will see 3 million fewer car sales and an estimated market size of 9.6 million units this year, the lowest since 2013.

To address the fall in sales ACEA has called for; “fast and strong measures by the EU and national governments.” And, it looks like they will be getting them in many countries.

In a re-run of stimulus packages used during the credit-crunch recession after 2008, a number of governments have committed to or are considering special support schemes. Unlike previous support arrangements, these are largely geared towards environmentally-friendly options. The UK announced on June 29th that it had no place for a scrappage scheme.

  • France has increased incentives for purchasing a battery electric vehicle (BEV) or a plug-in hybrid (PHEV) that can travel at least 50km solely on battery power. The government will also offer a scrappage bonus for trading in an old car and purchasing a new car with any powertrain. The two bonuses can be combined and a car buyer could receive €12,000 in incentives, if eligible for both programmes.
  • Germany has adopted a stimulus package for the automotive industry that includes a temporary VAT reduction of 3% and doubling the existing purchase incentives for BEVs. The German package, does not endorse industry-wide scrapping incentives. Helpful for manufacturers seeking to reach their CO2 targets in 2020, but likely to have a limited impact on an overall sales revival.
  • Spain’s government announced a stimulus programme to support the country's automotive industry by boosting investment in some key areas of the sector and offering incentives to replace cars older than 10 years for newer models and more energy-efficient vehicles.
  • Italy has proposed an economic stimulus package which is expected to be approved by mid-July. The subsidy would be offered to buyers of 'Euro 6' vehicles. It would reach €4,000 if buyers scrap cars that are 10 years old or more. The sum would comprise €2,000 from the government and €2,000 from the dealership and automaker.

The German car industry has condemned Angela Merkel’s government for excluding subsidies for new petrol and diesel vehicles from its multibillion-euro stimulus package, as record-low sales and exports hit the sector. The move has left OEMs concerned that they may find themselves sitting on more than €15bn worth of unsold combustion engined cars still stored in lots across Germany.

Responding to the outlook, rating agency Fitch Ratings anticipates the sales decline to slow further in the coming months, but against an extremely weak economic backdrop it expects new vehicle sales, which are typically well correlated to economic indicators, to be ‘constrained’.

Other Considerations

2020 is set to remain challenging. OEMS will continue to face pressure to comply with CO2 emission standards or face heavy fines and it is evident that for many, there is simply too much production capacity.

Governments may want to help their car makers, but there are many competing priorities such as re-booting tourism.

As far as consumers are concerned, used cars are offering a more attractive proposition, especially for people switching from public to private transport which they may see as a temporary measure pending the development of a suitable Covid-19 vaccine.

With collaborations and changing distribution models all on the table, significant change to the European industry looks increasingly likely.

By Kris Turner at 16 Jul 2020, 15:30 PM


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