Europe is one of the key markets for the global automotive industry. Yet, there have been some events lately which could impact growth in some countries.

In early July, the German parliament adopted a purchase incentive programme to encourage consumers into buying electrified cars. In neigbouring France, major incentives were announced to decrease pollution. From July 1, cars and light commercial vehicle made before 1997 will be banned in Paris from 8 am to 8 pm on weekdays. There is also an incentive of up to 400 Euros towards part payment of an annual pass for public transport.

In Spain, the eighth edition of the Efficient Vehicle Incentive Programme (PIVE) which ended on July 31 has used approximately 83 per cent of its initial budget. This initiative is focused on fuel-efficient vehicles. So what does the future hold for Europe and its key auto regions?

Beginning with France, its economy is expected to continue its journey to recovery with a revised GDP growth of 1.7 per cent in 2016. PwC Autofacts anticipates an annual growth of 6.8 per cent to two million new car registrations in 2016.

Consumer confidence in Germany is down 1.6 points in June 2016 which is still better than (-) 6.2 in March. This is largely due to more positive expectations from the economy over the next 12 months. However, a possible downside risk could come from the Brexit negotiations now under way. German suppliers selling components to British manufacturers might need to lower prices as a reaction to decreased purchasing power stemming from currency fluctuations.

Keeping this in mind, Germany is forecast to see solid growth of passenger car sales in H2 2016. Its economy is expected to stay strong, supported by low interest rates. Further, the Euro exchange rate favours German exports . PwC Autofacts forecasts growth of 5.2 per cent to 3.4 million newly registered cars in 2016. As for Italy, the new car market continues to recover. This is thanks to aggressive commercial campaigns and favorable financing conditions as well as fuel prices. Yet, political uncertainty relating to the Brexit effect could impact consumers’ confidence.

PwC Autofacts estimates the Italian market to keep growing in H2 2016 but at a lower intensity from H1. With new cars registered during Q2, sales are forecast to grow to 1.8 million units for 2016, up 15.4 per cent year-on-year.

The Spanish economy is expected to maintain a GDP growth rate above three per cent this calendar. Private consumption will remain the most important growth driver. Since the average car age remains high, replacement demand is expected to drive sales. Therefore, the end of the PIVE plan might have a rather low impact.

Automotive trade body, ANFAC has announced that further renewal plans might be necessary in the future. It remains to be seen if and how the MOVEA plan, which supports the renewal of car fleet by promoting sales of alternative-fuelled vehicles, works out. Overall, Autofacts forecasts the new car market to grow by 8.9 per cent this year to 1.1 million cars.

Moving now to the UK, although the Society of Motor Manufacturers & Traders speaks of stabilisation of the new car market this year, Autofacts has a pessimistic outlook on UK’s sales outlook for H2 and likely next year too. Uncertainty is surely the major risk factor in the short-term that could undermine consumer/business confidence in the coming months and adversely affect the UK market.

Some companies have already announced deferring investment until the post-Brexit picture becomes clearer. As a result, economic institutes have lowered their UK GDP outlook and the economy could slip into a recession by end- 2016. Consequently, PwC Autofacts anticipates new car sales to fall , resulting in 1.1 per cent fall in annual growth to 2.6 million new car registrations in 2016.

The writer is Partner, Price Waterhouse

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