European car sales rise at last, but don't get too excited by the news.

By David Bailey on Jul 15, 09 02:53 PM in Automotive

European car sales rose in June for the first time in 14 months, again underlining that the car sector seems to bottoming out after the worst downturn since records began.

New car sales rose by 2.4% year-on-year in June with some 1.46 million new cars registered in Europe, according to the European Automotive Manufacturers' Association ACEA.

Whilst this is good news, we shouldn't get too carried away. Two things seem to be going on here.

Firstly, sales this time last year nosedived, so we're now comparing this June's figures with truly awful figures a year ago. That's a statistical effect, so let's not get over-excited. What the figures really show is that things are bottoming out at a very low level.

Secondly, what growth we are seeing is being driven by government scrappage schemes. That's good news, of course, in that there is some stabilisation in the market thanks to policy intervention, but when the schemes are phased out one wonders how the car market will hold up.

In the UK's case expect a call to extend the scheme when the cash runs out in the Autumn, especially as this will coincide with the end of a temporary VAT reduction. France has already said that it will gradually phase out the scrappage scheme so as cushion the impact on car makers.

Such scappage schemes now operate in all of the big European markets and have helped sales, especially of small cars such as the Ford Fiesta.

Across different countries, sales in Germany were up by over 40%, in Italy by 12% and in France by 7%. Britain and Spain introduced scrappage schemes later, and sales in both were down 16% year-on-year. Even here, though, the scrappage scheme does seem t have helped in slowing the fall and stabilising the market.

Where this leaves the luxury makers such as JLR is a big question. They haven't benefited much - if at all - from scrappage schemes and the government in the UK needs to get its loan guarantee in place to enable JLR to access European Investment Bank funding.

However, they may see some signs of recovery later this year as the economy improves, as in Jaguar's case as new models such as the stunning XJ come on stream.

Professor David Bailey works at Coventry University Business School.

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