Europe’s car sales will stumble along

Neil Winton
Special to The Detroit News

Europe’s economic problems continue to provide reasons for car buyers to retreat to the sidelines, and not even the sharp fall in the price of oil is likely to provide much inspiration for sales this year, according to Fitch Ratings.

In fact, the falling oil price was behind the latest worrying data which showed European deflation worsening in January, thanks mainly to an 8.9 percent fall in energy prices. The European statistics office said Friday that prices fell in January by 0.6 percent compared with a 0.2 percent decline in December.

Fitch Ratings, in a report published before the data on deflation from the 19 members of the European currency zone was published, said it expects car sales growth in Western Europe to slow to between 2.5 and three percent in 2015, after last year’s 4.8 percent increase to 12.1 million.

West Europe includes all the big markets like Germany, Britain, France, Italy and Spain. Last year’s increase was the first gain since the shakeout set off by the Great Recession starting in 2008. Any hopes that car sales would return to a more healthy growth level have stumbled because of ominous political noises from Russia, and the political crisis in Greece which some fear might lead to the breakup of the euro single currency zone. Earlier this month the European Central Bank announced a so-called Quantitative Easing plan, to create money and try and kick start the ailing economy back into life.

Fitch doesn’t think the fall in oil prices will have much of a direct impact on sales, although it might lead to increased driving mileage.

“We believe that demand for cars will continue to be driven primarily by other economic variables including unemployment, disposable income, fiscal and interest policies and consumer and corporate confidence, rather than the more distant considerations about the cost of using a car. In addition, gasoline prices in most European countries contain a high proportion of taxes, which acts as a buffer limiting the effects of (oil) price movements,” Fitch said.

Fitch’s forecast for Western Europe sales compares with a recent prediction by Renault Nissan CEO Carlos Ghosn, who expects an increase of at least two percent in 2015. In fact this was a more optimistic forecast than his previous one to two percent prediction.

Not everybody is gloomy about Europe’s prospects in 2015. Investment bank Evercore ISI said Europe is increasingly seen as a potential surprise story for 2015, at least for investors. Europe has the capacity to surprise because of low expectations.

“We believe that in a low oil, strong dollar environment the chances of positive surprises from E.U consumers are increasing. Autos would be at the center of this,” Evercore ISI said.

The strength of dollar against the euro currency could provide a big boost to sales in the U.S. for the likes of Audi, Mercedes, BMW and Porsche.