EU Car Sales Fall to 20-Year Low as Joblessness at Record

EU Car Sales Fall to 20-Year Low as Joblessness at Record

European Union car sales in May fell to a 20-year low as rising joblessness caused by a recession in the euro region contributed to falling demand at PSA Peugeot Citroen (UG), Renault SA (RNO) and General Motors Co. (GM)

Registrations in the 27-member EU dropped 5.9 percent to 1.04 million vehicles from 1.11 million cars a year earlier, reaching the lowest level for the month since 1993, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today in a statement. Including figures from Switzerland, Norway and Iceland, sales in May fell 5.9 percent to 1.08 million cars.The unemployment rate reached a record 12.2 percent in April in the 17 countries using the euro, and manufacturing output in the area contracted in May, extending a decline to almost two years. Europewide deliveries by Paris-based Peugeot, French competitor Renault, GM and Italian manufacturer Fiat SpA (F) all fell at least 10 percent last month.

“Nobody’s buying cars,” and there’s “no reason to be optimistic,” as the sales increase the previous month was because of a calendar effect, Jens Schattner, a Frankfurt-based analyst at Macquarie Group Ltd., said before the ACEA released figures. Any revival in deliveries won’t start until the end of the third quarter at the earliest, he said.

Executives’ Forecasts

Auto-industry executives are forecasting that the European car market will shrink a sixth consecutive year in 2013, with a possible recovery starting by the final quarter. Maxime Picat, head of the Peugeot brand, reiterated a prediction on May 22 that industry sales in Europe will fall 5 percent this year.

Group European sales at Peugeot, the region’s second-biggest carmaker, dropped 13 percent in May, with the Citroen division’s registrations plunging 15 percent and the Peugeot brand posting a 12 percent decline. Renault (RNO), based in the Paris suburb of Boulogne-Billancourt, reported a 10 percent drop. European sales fell 11 percent at both GM and Turin-based Fiat.

Peugeot fell as much as 1.1 percent to 6.57 euros and was trading down 0.6 percent at 9:14 a.m. in Paris. Renault dropped 0.9 percent to 56.78 euros. Fiat declined 1.1 percent to 5.59 euros in Milan.

The euro region’s recession, the longest since the common currency was introduced in 1999, deepened in the first three months of the year as investment and exports plunged. The European Central Bank widened its forecast of a full-year drop in the area’s gross domestic product on June 6. The economies of Portugal, Italy, Greece, and Spain will contract at least 1.5 percent, economists surveyed by Bloomberg predict.

Five-Month Decline

The car-sales drop in May contrasts with growth in April that was the first gain in 19 months. Five-month Europewide registrations fell 6.8 percent to 5.26 million units, with demand in the EU declining at the same rate to 5.07 million vehicles.

Four of Europe’s five biggest automotive markets shrank in May. Deliveries in Germany, the region’s largest economy, dropped 9.9 percent, compared with an 3.8 percent increase in April. Sales declined 10 percent in France, 8 percent in Italy and 2.6 percent in Spain. Demand in the U.K. rose 11 percent.

“The main difficulty is that the U.K. market is the only one that supports European demand because the German one is worse than expected,” Thomas Besson, a Paris-based analyst at Kepler Capital Markets, said today by phone. “That being said, consumer confidence is improving everywhere in Europe except in France and Italy, and this is very encouraging.”

Vehicle Discounts

Dealers in Germany cut car prices by an average 11.9 percent last month, versus 11.6 percent a year earlier, according to Autohaus PulsSchlag trade magazine. GM’s Opel brand deepened its average discounting to 15.2 percent of the list price from 12 percent a year earlier and Fiat offered price cuts of 13.5 percent versus 12 percent in the 2012 period. Peugeot, Citroen and Renault’s combined average price cut in Germany was 13.3 percent in May, the magazine said.

Daimler AG (DAI) Chief Executive Officer Dieter Zetsche said on June 12 that the European car market is “bottoming out” and a “slight recovery” is possible in the region in the second half of the year.

Peugeot’s Picat said on May 22 that demand for new vehicles in the region has started to stabilize at a “very low level.” The French company is taking steps to shut a car factory near Paris and is in talks with unions on improving work efficiency.

GM’s Strategy

GM’s European sales drop last month was propelled by a 23 percent plunge at the Chevrolet brand, while Opel and its U.K. sister division Vauxhall posted an 8.4 percent decline. Detroit-based GM, seeking to restore profit in Europe after accumulating $18 billion in losses in the region since 1999, is reorganizing in response to the car-market drop with plans to shutter a plant in Germany and freeze pay for remaining workers through 2015.

Europewide sales by Dearborn, Michigan-based Ford Motor Co. (F) fell 0.5 percent in May. The manufacturer, which is forecasting a loss of $2 billion in Europe for 2013, said this week that it’s counting on new models such as the EcoSport compact sport-utility vehicle to help reduce reliance on low-margin sales to rental-car companies in the region.

Volkswagen AG (VOW3), Europe’s biggest carmaker, posted a 2.8 percent decline in sales in the region last month, led by a 7 percent drop at its namesake brand. The Audi division, the world’s second-largest maker of luxury vehicles, sold 3.9 percent fewer cars.

VW’s Bonds

The manufacturer completed the sale of 1.2 billion euros ($1.6 billion) in convertible bonds yesterday to finance an expansion that includes new plants and taking full control of truck unit MAN SE. Wolfsburg, Germany-based VW is setting up new production sites and adding models to overtake GM and Toyota Motor Corp. (7203) as the world’s biggest automaker by 2018.

European group sales at Stuttgart, Germany-based Daimler rose 0.5 percent as the Mercedes-Benz division, the world’s third-biggest luxury-car manufacturer, posted a 2.6 percent increase. Registrations at the Smart two-seat car brand dropped 15 percent.

Bayerische Motoren Werke AG (BMW), the global leader in luxury-vehicle sales, sold 6.6 percent fewer cars in Europe in May. Demand dropped 7.3 percent at the BMW brand and 3.4 percent at the Mini small-car unit.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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