Europe car sales extend downward spiral with worst drop of 2019

[MUNICH] European car registrations fell sharply in June, resuming a downward spiral that adds to the industry's litany of woes.

After a profit warning last week from German manufacturer Daimler AG, Europe's industry body reported a 7.9 per cent year-on-year drop in sales for June. That's the biggest decline this year, and the ninth in the last 10 months.

The weakening automotive market may partly reflect growing nervousness among European households about committing to a big-ticket purchase. If consumers continue to rein in spending, that's another problem for the region's economy, where manufacturing is already under pressure from cooling global demand.

Raging trade wars have already put factory confidence under pressure and top exporter Germany is at risk of a recession. The rising potential for a hard Brexit dragged the UK's pound to its lowest level this week since 2017.

The European Automobile Manufacturers' Association, or ACEA, blamed the June drop in car sales on fewer working days during the month. The year-to-date decline is now at 3.1 per cent, with headwinds ranging from new regulations to the lingering effects of emissions-cheating probes which have hurt sales of diesel cars. The Chinese market, the world's biggest, is under strain partly due to the stand-off over trade with the US.

A combination of factors likely fed the monthly decline in Europe, said Marco Valli, chief euro-zone economist at Unicredit in Milan. He noted strong industry growth in recent years and issues around diesel vehicles.

"The car cycle is getting mature" and consumer sentiment is "off its cyclical peak," he added. "All this is overlapping and contributing to the weak outlook for car sales."

New-car registrations dropped more than 8 per cent in France and Spain, while German and UK sales fell 4.7 per cent and 4.9 per cent respectively, the ACEA said Wednesday.

Daimler last week issued its fourth profit warning in just over a year due to the costs of a recall and allegations of emissions-tampering in diesel cars. The carmaker also blamed weaker global markets. BMW in May reported its first loss in a decade in the main automotive division.

At the year's half-way mark, Europe is likely facing a second annual decline in car sales. The industry association has already revised its prediction for the year to a 1 per cent drop, blaming uncertainty surrounding Brexit and flattening demand. It had previously forecast a 1 per cent rise. Before last year, the industry had enjoyed uninterrupted annual growth since 2013.

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