Dead cat bounce in European car market: Read why the long term trend in Europe is still down, and what can be done about it

It helps to keep things in perspective

It helps to keep things in perspective

EU passenger car sales were up 13.3 percent in December, a data point that is already being celebrated as the big European turn-around. Not so fast, says the European manufacturers association ACEA, which supplies the numbers. One good month doesn’t make the year less miserable than it was. Sadly, there will be a whole lot of more misery.

In all of 2013, EU new car sales dropped another 1.7 percent to 11.8 million units. (Full table here.) As the ACEA points out, “new car registrations have been on the decline for six consecutive years. In terms of annual volumes, 2013 is the worst year since 1995 (15 EU countries at the time), and the worst ever since ACEA began the series in 2003 with the enlarged EU.”

December looks good, with Europe’s volume markets posing solid growth: +1.4% in Italy, +5.4% in Germany, +9.4% in France, +18.2% in Spain and +23.8% in the UK. The emphasis is on LOOKING good. December 2013 compares to an absolutely horrific December of 2012, the worst since ACEA started counting in the EU27.When comparing to disasters, percentages can be more deceiving than they already are.

With the economies in the EU slowly turning around, and with fears of whole governments going bankrupt abating, we will doubtlessly see a bottoming-out, and even a small bounce as customers finally make long delayed car purchases.

gerdemography

A dramatically shrinking buyer pool will wreak havoc with car sales

 

However, as it has been pointed out here a few times, an important ingredient for a sustained recovery is going missing: Buyers. The population in most EU countries is getting older, and there are drastically fewer young people. It’s not that they younger ones don’t like cars, as the trope goes. There simpkly aren’t enough juniors to make up for the retiring seniors.

In most of Europe most cars are being bought by people between 40 and 60 years.  In many markets of Europe, the population in this band has already peaked. In a few years, this peak will retire, leaving behind a drastically smaller pool of buyers.

Managers of large automakers in Europe are aware of this fact, but with the exception of Renault’s Carlos Ghosn, they choose to ignore it, at least in public.

If there are winners in this race, then they will be automakers who reach further down into the younger age groups. They need to offer a car that is attractive to younger people and their smaller wallets. The competition for this car is the used car, which is what young people usually buy.

The brand to watch is Renault’s Dacia, which is approaching the price level of many younger used cars. With sales up 23 percent in 2013, Dacia had the strongest growth of all EU brands. You can see traces of this trend at market leader Volkswagen, where the “smart shopper” brand Skoda rose 4.2 percent, and where SEAT is up 11 .3 percent, while all other Volkswagen brands are down. The gains of Mercedes (up 5.3 percent) were driven mainly by A-Class and the entry-priced CLA.

Luxury brands on the other hand should soon see strong declines – if they don’t make low priced offers such as the CLA: Luxury brand buyers typically are quite old, with the average age of the Mercedes buyer close to 60. This demographic will quickly dissipate, and with it the fortunes of luxury brands that rode the wave since the beginning of the millennium.

You don’t have to believe this prediction. Just remember where you did read it when it will happen.