BMI View Playing Out As Growth Continues

Passenger car sales in Spain increased 7.6% year-on-year (y-o-y) in January 2014, to 53,436 units. BMI forecasts 2.8% growth for the full year on the back of the extension of the vehicle scrappage scheme buoying sentiment and pent-up demand from sustained declines in recent years, despite the country's consumer story remaining fairly weak. Furthermore, we expect growth in the first half of the year to be boosted by low base effects from a weak H113 ( see graph), in line with the January figure.

Consumer Story Rebounding?

BMI believes that, although it is set to remain very weak, Spanish private consumption is beginning to show signs of a turnaround, and we expect it to begin moving along a modest upward trajectory over the coming quarters. Unemployment has moderated slightly in recent months, although it is still very high by historical standards, and there are some signs pointing to a rebound in consumer confidence.

Further Growth Expected
Spain Monthly Passenger Car Sales, Units

BMI View Playing Out As Growth Continues

Passenger car sales in Spain increased 7.6% year-on-year (y-o-y) in January 2014, to 53,436 units. BMI forecasts 2.8% growth for the full year on the back of the extension of the vehicle scrappage scheme buoying sentiment and pent-up demand from sustained declines in recent years, despite the country's consumer story remaining fairly weak. Furthermore, we expect growth in the first half of the year to be boosted by low base effects from a weak H113 ( see graph), in line with the January figure.

Further Growth Expected
Spain Monthly Passenger Car Sales, Units

Consumer Story Rebounding?

BMI believes that, although it is set to remain very weak, Spanish private consumption is beginning to show signs of a turnaround, and we expect it to begin moving along a modest upward trajectory over the coming quarters. Unemployment has moderated slightly in recent months, although it is still very high by historical standards, and there are some signs pointing to a rebound in consumer confidence.

We believe, however, that this improved sentiment is likely to take some time to filter through to the passenger car segment, as consumers are likely to remain reticent about big-ticket purchases.

Indirect Effects Of The Scrappage Scheme?

In September 2013, the Spanish government announced the extension of its PIVE (Programa de Incentivos para los Vehículos Eficientes) vehicle scrappage scheme in a bid to support the market. The government added an additional EUR70mn (US$95.8mn) to the fund, as the initial EUR220mn (US$ 301mn) allocation had been exhausted since the scheme started in 2012. It was previously extended in January 2013.

Under the scheme, the government provides a rebate of EUR2,000 (US$2,600) to buyers who trade in their old car (over 12 years old) for a 'low consumption vehicle'. Cars powered by natural gas, hybrids, plug-in hybrids, and extended-range electric (fully or partially powered by internal combustion engines and electric petrol or diesel) qualify for the scheme.

BMI believes the scheme helped buoy the Spanish auto market somewhat in 2013, with sales increasing 3.3%, but we believe its direct impact was rather muted due to its limited scope. We attribute the growth in 2013 vehicle sales more to pent-up demand and low base effects, rather than the policy's impact. Hybrid, electric, and other alternative-fuel vehicles hold some 1.5% of the market; diesel engines dominate the market, with a 68% market share, thereby underlining the PIVE programme's restricted scope.

That said, the extension of the scheme may have served to boost general market sentiment, encouraging vehicle purchases in the wider segment in the final months of 2013. BMI is doubtful that such dynamics are sustainable, however, and we expect this to moderate over the remainder of 2014.

Pent-Up Demand Driving Growth

The Spanish passenger car market declined 13.4% in 2012, to 699,589 units, even with the scrappage scheme in place. Sales are far below their 2005 peak ( see bar chart), and the market has generally declined since then. We believe that these declines in the passenger car market have created some pent-up demand as consumers delayed their purchasing decisions, and this has partly driven recent growth.

Pent-Up Demand Driving Growth
Spain Passenger Car Sales Data And Forecasts, Units
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