The car's the star. But it may not be for much longer

European car sales have never been lower in modern history. Our Chief Economics Commentator says there are three main lessons we can take from the latest figures

Hamish McRae
Tuesday 19 February 2013 18:59

European car sales hit an all-time low last month, or at least the lowest since the present system of collecting numbers began in 1990.

In January, 885,159 new cars were registered in the European Union, down 8.7 per cent on 2012, according to the European Automobile Manufacturers’ Association. Almost every major market was down – Germany by 8.6 per cent, France by 15.1 per cent, Spain by 9.6 per cent and Italy by 17.6 per cent. Only one big market was up – the UK, by 11 per cent.

Why this matters

These are really interesting figures. For a start, they are hard ones – not estimates based on sample surveys or measures of sentiment. There is no tweaking of the seasonal adjustment. You can actually count the number of cars registered, and while there may be a bit of jiggling by dealers registering cars they have not yet sold, this is about as solid a figure as you ever get in economics.

They are interesting, too, because a car is the second most expensive thing most people buy after their home. It is a purchase that can often be delayed if people lack confidence in the future or are particularly strapped for cash. So car sales tell you a lot about what consumers feel: not what they tell market researchers that they feel but their true mood as revealed by their actions.

Car sales are also important because the industry is so big. Even in these days of high automation, it takes quite a lot of people to build 885,159 cars. The European motor industry employs two million people directly and upwards of 11 million indirectly – the latter being about 5 per cent of all European jobs.

So the health of the industry is crucial to the health of the EU economy – and an indicator of its health. So what should we read from these car registration numbers? There are, I think, three main stories, the first two obvious, the third less so.

Lesson One: Economics

The first story is the economic one. From a UK perspective, a country buying 11 per cent more cars than last year cannot be a country in recession. Common sense tells you that, and eventually, I am sure, the statisticians will catch up with what is happening.

Conversely, Europe is in recession and a deeply worrying one for Italy and to some extent France. Even Germany is struggling, though I see also that both BMW and Mercedes increased their overall sales in January, unlike the mass-market manufacturers. It is a paradox that in hard times people seem prepared to go upmarket.

Lesson Two: Industry

Story two is the industrial one. Europe has too much car manufacturing capacity. While some companies, such as Jaguar Land-Rover, are adding to capacity, the industry as a whole cannot sell as many cars as it can make. You can scramble along for a bit hoping demand will pick up, but eventually car firms will crack. Ford lost $2bn in Europe last year; General Motors $1.8bn.

Quite how the pain will be shared, and what help governments will feel they need to give to deaden the pain, is still unclear. There are arguments both for a rapid run-down and using any spare funds for encouraging workers to shift into different jobs, and conversely for using subsidies to try to slow the pace of change and thereby make decline less disruptive. Either way, this is a very difficult process, as we know here in Britain.

Lesson Three: Social

Story three is the social one. If we Europeans are buying fewer cars, what does that say about our spending priorities and our changing tastes? Separately, we are seeing figures coming through that suggest younger people are driving less, that fewer of them are taking driving tests, that people are moving into city centres and avoiding having to drive – and so on.

So the question really is whether we are in the early stages of long decline not just in car sales and production, but in the use of the car. Of course, cars will not disappear but they may be used much less. If so, that would be a social revolution indeed.

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