Analysts Say European LV Sales Near Bottom of Trough

PARIS – The European Union’s new-car market suffered its worst May since 1993, with 1.04 million sold in the region, but nonetheless there were small signs that the bottom may be approaching.

In 15 of the 26 EU countries monitored by the ACEA, the auto makers’ association, year-to-date sales improved last month.

For the EU as a whole, however, May deliveries were down 5.9% and the 5-month total was down 6.8%. Auto sales in Europe have declined five consecutive years and all evidence so far points to a sixth straight decline in 2013.

The biggest concern is the biggest market. Germany in May was down 9.9%, dragging the 5-month tally 8.8% worse than like-2012. Europe’s other four big markets – France, Italy, Spain and the U.K. – all improved their year-to-date sales. Although the others remained in red ink, the U.K. again was flat-out positive, up 11.0% in May and 9.3% on the year.

Analysts see the market close to bottoming out, although the latest sales figures prompted headlines in Europe mostly of the “Worst Since 1993” sort.

“Flat is the new up,” AlixPartners Stefano Aversa tells the Financial Times. “The good news is that the decline will stop, but the bad news is that it will not get better anytime soon.”

AlixPartners predicts no real growth until 2019. Morgan Stanley auto analyst Stuart Pearson recently improved his expectations for 2013 to a decline of 4%, up from a 6% decline earlier, but he also said sales would “remain flattish at current levels.”

The question for auto makers is how many of them can hold out while annual deliveries in Europe hover around 12 million to 13 million units. Sluggish sales are killing profits.

AlixPartners says 58 of the region’s 100 largest auto-assembly plants are operating below 75% of capacity, compared with 39 a year ago. Typically, 80% is considered a profitable utilization rate.

PSA Peugeot Citroen, Renault, General Motors and Fiat sales all retreated by double digits last month. Ford and Toyota were down double digits for the year, although each had a better May (down 0.3% and 4.9%, respectively). Among the major volume players, only Volkswagen Group limited its decline to single digits for both the month (off 2.8%) and year-to-date (down 3.3%).

In general, the recession in many European markets has led to a situation where entry-level and premium brands are doing the best. Jaguar had the best year-to-date result in the region in May, up 18.2%, followed by entry-level Dacia, improving 17.7%.

On the other hand, there are always exceptions: The three brands doing the worst in Europe so far this year are Lexus, down 34.7%; Alfa Romeo, down 32.8%; and Chevrolet, down 31.5%.

“The Chevrolet brand ought to have profited by the increase in demand for affordable, small cars,” says Jean-Michel Prillieux of the French consultantcy Inovev, “but it is penalized by an aging lineup.” He expects continued declines until 2016, when the Spark, Aveo and Cruze are replaced.