You think EU car sales are bad? They will get worse, much worse

eu27sales

European car sales are having the worst year ever recorded, says the EU auto manufacturer association ACEA. Sales are set to be down for the sixth straight year. The EU, formerly the world’s largest car market, is a distant third after China and the U.S.A. Many hopes and projections are pinned on a turn-around. But will the EU auto market turn around?  I don’t think so, and here is why.

Even if the EU economy should recover, there will be an important ingredient missing: Buyers. The population in most EU countries is getting older, and there are drastically fewer young people.

gerdemography

In the mid-1990s, the EU car market went through a crisis. At Volkswagen, we did a pan-European study based on demographics. It predicted a car boom at around the turn of the Millennium, it said that after 2010, the market will erode,  with premium cars (older buyers) still going strong. For after the 2020- 2025 timeframe, we predicted a catastrophe.

The projections were based on simple population math. Around 1970, as the pill became popular, births dropped by approximately half from their prior peak in the mid-sixties. This peak now sits in the middle of the prime new car buying age, which in most of Europe is between 40 and 60 years. The trailing edge of the peak already makes itself felt with lower sales. At around 2020, this peak will retire, leaving behind a drastically smaller pool of buyers.

This means that the EU cars market will continue its downtrend for a long time, and it will not significantly recover in our lifetime. Sure, there will be a few pops here and there, but the general trend is down. These factors are known in the industry, but not much discussed, except by outspoken executives such as Carlos Ghosn.

What does this all mean?

  • Carmakers that have been losing money in the preceding years will continue to hemorrhage.
  • Carmakers that do not have strong sales in developing markets are doomed.
  • Financially strong OEMs with strong sales abroad will not shed capacity, leaving the weak to die.
  • The weak are Opel, PSA, and Fiat.
  • Even Daimler can get in trouble: Its customers are relatively old, and with the boomers retiring, Daimler’s main market could evaporate.

A few remarks to the charts: Car sales plot sales of motor vehicles, i.e. passenger and commercial vehicles, in the EU27. In 2006 and 2007, the data are for the EU25. The age distribution chart is for Germany, Europe’s largest auto market. The charts are different from country to country, but similar. The situation is slightly different in southern Europe, where the Pill impacted births later.