Weak Private Consumption Set To Weigh On Sales

Italian passenger car sales in 2013 declined 7.1% year-on-year (y-o-y), to 1,303,534 units. BMI originally forecast an 8% decline over the year, as we expected the country's weak private consumption story to impact the sector and weigh on sales volumes. This played out to a slightly lower extent than we had envisaged due to low base effects and pent-up demand from a period of sustained declines in the market.

In December, sales in the passenger car segment upticked 1.4% y-o-y, to 88,705 units. During the second half of the year, the rate of decline in the market was more modest than that witnessed in the first half ( see graph). We believe that this is mostly due to low base effects, however, and not a sign of a sustained resurgence in the market.

Indeed, 2013 marked the sixth consecutive year of declining car sales volumes in the country, and the market is now far below its 2007 peak of some 2.5mn units. BMI believes that this pent-up demand from delayed purchasing decisions helped temper the rate of decline in 2013.

Market Weakness Persists
Italy Monthly Passenger Car Sales, units

Italian passenger car sales in 2013 declined 7.1% year-on-year (y-o-y), to 1,303,534 units. BMI originally forecast an 8% decline over the year, as we expected the country's weak private consumption story to impact the sector and weigh on sales volumes. This played out to a slightly lower extent than we had envisaged due to low base effects and pent-up demand from a period of sustained declines in the market.

In December, sales in the passenger car segment upticked 1.4% y-o-y, to 88,705 units. During the second half of the year, the rate of decline in the market was more modest than that witnessed in the first half ( see graph). We believe that this is mostly due to low base effects, however, and not a sign of a sustained resurgence in the market.

Market Weakness Persists
Italy Monthly Passenger Car Sales, units

Indeed, 2013 marked the sixth consecutive year of declining car sales volumes in the country, and the market is now far below its 2007 peak of some 2.5mn units. BMI believes that this pent-up demand from delayed purchasing decisions helped temper the rate of decline in 2013.

Economic indicators suggest that consumer sentiment is beginning to turn a corner, in line with the moderation in decline in autos sales, but we caution that the recovery will be slow and we expect private consumption to remain weak over the short-term ( see 'Limited Growth Potential', November 21). Indeed, Italian households are hit by ongoing austerity measures, including higher taxes and cuts in social spending, unemployment remains elevated, and real wage growth is fairly tepid. This outlook partly informed our 2013 passenger car forecast.

In 2014, we expect total private consumption to post a modest recovery, but much of this is down to low base effects from several years of decline. As such, we expect many households to remain reticent about big ticket purchases, and BMI believes that a recovery in the passenger car market will remain some way behind. Accordingly, we forecast a 5.1% contraction over the year.

Cautiously Optimistic Western Europe Outlook

The outlook for the Italian market is somewhat more bearish than our cautiously optimistic view on the broader Western European market.

Across Western Europe in 2013, we generally expected to see a continuation of the declines in vehicle sales witnessed in 2012, albeit at a slower rate. This has broadly played out, although some markets have returned to positive territory. However, vehicle sales in many markets continue to drop, and the consumer outlook is still generally poor across the region, despite signs of some modest improvements.

In 2014, however, we expect the regional market to post modest sales growth. We believe that this represents a bounce-back effect from years of pent-up demand (and delayed purchasing decisions), rather than a return of consumer confidence. In Italy, however, we expect to see a further contraction in the coming year largely as a result of ongoing weakness in private consumption.

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Sector: Autos
Geography: Italy
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