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Germany helps Europe car market to first gain in 9 months

Munich

EUROPEAN car registrations edged higher in May, helped by a jump in German deliveries, to post the first increase in nine months.

Sales climbed 0.04 per cent to 1.44 million cars compared to a year ago, the European Automobile Manufacturers' Association (ACEA) said on Tuesday. Sales in Germany, the biggest European car market, surged 9.1 per cent to counteract an ongoing pullback in the UK, where uncertainty over Brexit continues to put off consumers from purchasing new vehicles. Spain also declined.

Europe's biggest car market benefited from carmakers offering generous trade-in incentives to swap older diesel cars for cleaner, newer models or electric vehicles. Companies like Volkswagen AG and BMW AG are offering as much as 7,500 euros (S$11,509) as a number of cities weigh or have put in place bans on older diesel cars.

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The country also had two additional trading days compared with a year ago. The gain in Germany came despite gloomy economic data showing an unexpected rise in unemployment in May as well as consumer confidence coming in below predictions. The UK declined 4.6 per cent while Spain fell 7.3 per cent.

The market is still "fragile", Peter Fuss, a partner at EY Consultancy, said in a statement. "Given the gloomier economic outlook and the unresolved Brexit issue, these markets are likely to see even more downturn as the year progresses."

European auto stocks fell slightly after the opening bell in Frankfurt. The Stoxx Europe 600 Autos and Parts Index fell 0.35 per cent, while Volkswagen fell as much as 0.4 per cent.

Car sales had been in a protracted slump since August, starting with wild gyrations after new emission testing regulations that extended into worsening anxiety over Brexit and slowing economic growth. Softer sales have led to sliding profits as carmakers battle global jitters over US-China trade tensions as well as ongoing unprecedented spending on the shift to electric cars.

Among major manufacturers, BMW saw strong gains of 8 per cent for the group after also introducing a range of new models. Peugeot-maker PSA Group rose 4.1 per cent in May, while Fiat Chrysler Automobiles NV fell 8.3 per cent.

The reprieve from a nascent turnaround may be short-lived, as carmakers ready for tightening Euro-pean Union regulations on fleet carbon dioxide emissions starting next year. The industry faces penalties of 33 billion euros unless it can achieve more improvements, Evercore ISI analyst Arndt Ellinghorst said in a note last month. The new rules will pressure carmakers to sell more electric and plug-in hybrid cars, which for now sell at lower margins than cars with combustion engines.

For the year through May, Europe's car market declined 2 per cent to 6.94 million cars, ACEA said. BLOOMBERG