Vehicle Sales Growth To Defy Weak Consumer Story
Passenger car sales in Spain increased 11.8% year-on-year (y-o-y) in the first three months of 2014, to 202,128 units, which is very much in line with our expectations. BMI forecasts 9% growth for the full year on the back of the recent extension of the vehicle scrappage scheme buoying sentiment and pent-up demand from sustained declines in recent years, despite the country's weak consumer story weighing on retail spending more generally.
We expect growth in the first half of the year to be further boosted by low base effects from a weak H113 ( see graph), in line with the year-to-date figure. Higher base effects in the latter part of the year are likely to moderate the growth rate, and the impact of the scrappage scheme will wane somewhat over the coming months. Accordingly, we expect the strong growth rate seen in the opening months of the year to moderate.
There are a number of upside risks to our 2014 forecast, however: the scrappage scheme and pent-up demand in the market may continue to boost sales volumes over the year, and the weak consumer story may not impact passenger car sales to the extent we currently envisage.
Consumer Story Weakness To Continue
BMI believes that levels of private consumption in Spain are set to remain very weak. Unemployment remains high, coming in at 25.8% in February, and consumer confidence and retail sales remain moribund. Moreover, stagnant real wage growth continues to weigh on disposable incomes and households' ability to repay their debts. Despite this weak consumer story, however, passenger car sales in Spain have remained elevated in the opening months of 2014, and we expect this to continue over the remainder of the year.
|Pent-Up Demand Buoys Market|
|Spain Monthly Passenger Car Sales (LHS) And Historical Data And Forecasts (RHS), Units|
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 (USD95.8mn) to the fund, as the initial EUR220mn (USD301mn) 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 (USD2,600) 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 total 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 account for around 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 car segment in the final months of 2013 and early 2014. BMI is doubtful that such dynamics are sustainable, however, and we expect this growth 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 still 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.