Vehicle Sales in Europe Are Likely to Fall for a Sixth Straight Year in 2013

Fitch Ratings said that vehicle sales in Europe are likely to fall for a sixth straight year in 2013, extending damaging price wars as mass-market manufacturers seek to protect their market share. In contrast, US and Asian manufacturers will enjoy continued demand growth, reflecting a stable overall outlook for the sector.

Fitch said that "We expect auto sales in Europe to fall by a further 2% to 3% in 2013, on top of a roughly 8% drop in 2012. Sales have been worst hit in France, Spain, and Italy, but the German market also began to soften in the second half of 2012. We believe German sales may fall in 2013, offsetting any potential recovery in other markets."

The years of falling sales in Europe have led manufacturers to engage in price wars to protect their market share and secure a minimum level of activity to cover their high fixed costs. This is mostly affecting mass-market brands such as Fiat, Renault, PSA, GM's Opel, and Ford of Europe. These manufacturers also face the lingering problem of overcapacity, which they began to address seriously in 2011 by announcing plans to close plants. More measures along these lines are inevitable. However, the benefits will take time to show, and there will be significant short-term costs from severance packages.

Outside the European mass market, prospects are rosier. US and Asian manufacturers, along with Europe's luxury manufacturers, will benefit from steady demand growth. We expect US light vehicle sales in 2013 to be around 15 million units, up 4.7% on the seasonally adjusted annual rate at the end of November. We also believe sales could continue rising for the next several years, although they may not reach the 17 million annual peak seen in the last cycle.

China sales growth will continue to moderate from the booming levels prior to 2011, but will still be in the mid to high single digits. Premium brands will also have the best growth potential in China due to low penetration levels the more limited impact of government regulations compared with mass markets brands.