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Guest opinion: Europe's car market continues to grow as Eurozone stagnates

Author: David Bailey (pictured), professor of industrial strategy at Aston University Business School

"The European car market collapsed after 2008, falling from 15.7 million units in 2008 to 12m in 2013, taking the market back to levels not since the mid-1990s and down by a quarter from the peak years in the late noughties.

As a result, most European mass car makers have bled red ink over the last few years.

The exceptions have been the German makers and Jaguar Land Rover, and amongst the mass producers only Renault has broken even thanks to its budget Dacia brand.

Partly as a result of growing sales in so-called ‘emerging’ economies, the impact on actual output in Europe has been cushioned slightly, with production falling by ‘only’ 2.5m to 14.3m as against a 3.7m drop in sales. The difference, of course, is the growth in exports from Europe in recent years.

The ‘carmaggedon’ in car markets in Europe has led to significant over-capacity issues. This self-inflicted problem anyway pre-dated the financial crash given the rush by the car makers into setting up huge amounts of capacity in central and Eastern Europe after 2000 in a quest to tap cheap labour costs (often at the expense of workers here).

This over-capacity problem was made all the worse by the crash itself, and in response there has been significant job cuts and plant closures in several countries.

Overall, since the unfolding of the financial crisis, the European auto industry has shed nearly 125,000 assembly jobs, and many more in the supply chain.

But after the worst crisis in 20 years, European car sales are now finally picking up, even if from a very low level. So far this year, registrations have been up by nearly 6%. August saw slower growth but was still the 12th consecutive month of sales growth.

Partly that has been driven by heavy discounting as car firms have slashed prices, with such discounts adding up to 20% off car prices in Germany and 18% in France on average, according to Barclays.

Ford and VW were among those carmakers widening discounts in August in markets such as the UK, Germany and France. Sales have been led by small cars, with the Polo and Fiesta models boosting sales for VW and Ford respectively by around 14%. So while sales figures have started to recover from very low levels, car firms are discounting heavily to entice customers into showrooms.

Firms in the middle of the market which have had a torrid time over the last few years are now seeing sales growth. Peugeot Citroen, bailed out by the French state over the last few years, saw sales rise 1.6%, while General Motors Europe saw growth of 7.5% in large part driven by its successful B-SUV Mokka model and small Corsa.

So far, this has not been a very robust recovery, which is not surprising given the ongoing wider weaknesses of the Eurozone.

In the big five car markets, August sales were up 9% in the UK and 14% in Spain.

Meanwhile, sales fell in Germany, France and Italy. The latter remains mired in recession and growth in France is again flatlining.

Ongoing Eurozone weakness prompted the European Central Bank to cut interest rates earlier this month. This economic weakness makes prospects for a more robust recovery in the car market more remote, and means that car makers may cut prices further.

The Eurozone weakness is also starting to impact on UK manufacturing, with export orders this month falling to their weakest levels since the start of 2013, according to a new CBI survey.

One bright spot has again been the performance of Midlands-based Jaguar Land Rover. It sold 19% more cars in August year on year in Europe, thanks to new models like the new Range Rover and Range Rover Sport. That should get even better as new models like the Jaguar XE come to market.

And while China will of course be hugely important for JLR , so too will its traditional core markets like Europe and the United States. That’s one big reason for staying in Europe, for our car industry at least."



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Comments

  • Right Way Auto Parts - 01/10/2014 06:01

    Yes its true Europe cars market growing day by day. Performance of the cars is better than last years. Jaguar Land Rover always makes great design of the cars with great features like comfort, performance, engine etc. Customer purchase more and more cars. Right Way Auto Parts

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  • Manpreet - 01/10/2014 06:03

    Europe market continues to grow yes its true because of the better car made. Rightwayautoparts.com

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