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Once bitten, twice shy – are we witness to a paradigm shift in consumer sentiment?

AID Newsletter Editorial 1321 from Peter Schmidt - November 20th 2013

German Autobahn traffic Frankfurt 2013

Open quote signThe way the runes are read, a long drawn-out hard slog still lies ahead across all of continental Europe. But on this side of the English channel, and further west still, in the USA, consumers have already pursued their favourite past time: shopping. And if latest upward revisions of forecasts for both the UK and the US are any guide, in the Anglo-Saxon world at least carmakers are cheered by the consensus view that a speedy return to business as usual now lies waiting just around the corner. Not so in Western Europe 

It would be wrong to pour cold water on the cautious optimism contained in recent European car sales numbers. It would also be wrong to build it up into some imminent great reversal. 

Yes, there is little doubt that many of Europe’s long-stalled car sales engines are finally starting to fire up again. 

But whether that’s the crack of a starting pistol signalling the swift return to business as usual remains to be seen. 

Like a sick patient responding for the first time to treatment, it is good news. 

But these first faint signs of convalescence must not be mistaken for a quick return to life as we knew it before this crisis struck. 

Today’s widely shared view in analyst circles is that it will be quite a while yet before the previously seriously ill patient will be strong enough to walk totally unaided. 

In short, and unlike all other previous recessions in Europe, the toxic fallout from this prolonged crisis, is judged likely to leave deep and long-lasting scars on consumers’ psyche. 

And yet, the same certainly doesn’t appear to be the case in the US, or for this matter in the UK, where consumers have evidently restarted doing what they did en masse in pre-Lehmann days: Shopping until they drop with money they haven’t got. 

This mentality, chiefly buying on credit, has bounced back strongly. 

Research reveals that the number of new cars bought with credit in the UK today has zoomed to stunning new heights. In fact, 75 per cent. 

This compares with a markedly lower 50 per cent in pre-recession days, the data shows. 

It underscores the view that today’s comparatively cheap and more affordable finance is at the root of Britain’s simmering new car market, which, at the latest count, has now seen 20 months of unbroken growth.

 In pin sharp contrast, during these same past 20 or so months, and with no notable exceptions, a severe car sales famine continued to reign supreme just across the English channel. 

These car trading patterns were echoed in the US, where Light-Vehicle sales have now risen for 21 out of the past 22 months. 

Like in the UK, where some weeks ago the industry revised upwards its 2013 car sales forecast to a near pre-crisis 2.25m cars, these same sentiments linger across the Atlantic. 

“A continued release of pent-up demand will lead the way to 16.4 million new car sales in 2014” forecasts 

The company also predicts that “the [US] auto industry is on pace to reach its highest annual sales performance in 2014 since shoppers bought 16.5 million new cars in 2006.” Compare that with latest forecasts for Western Europe. 

That’s summed up best by the now widely shared view that the 14.8m new cars still sold in pre-crisis 2007 in Western Europe will not be reached again until 2019 or 2020. 

Once-bitten, twice-shy? 

Unlike the bulk of their spend-happy Anglo-Saxon cousins, households in much of continental Europe now appear afraid to spend and borrow for big ticket items like cars. 

Instead, if recent pulse-sensing is anything to go by, growing numbers now appear willing to hold on to their cars for a great many more years. 

For some volume carmakers, and those lacking the firewall of UK, USA or China business in particular, this could hurt - a lot. 

The underlying message may not be what the industry wants, but latest developments support the view that much of continental Europe has turned into a jittery nation of credit-shy consumers. 

The net effect? 

Fewer new car sales.
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