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European car sales recovery will be slow, says Fitch


Ratings agency says cyclical factors making matters worse

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A recovery in new car sales in Europe, back to pre-crisis levels could take until the end of the decade if it can be achieved at all, according to Fitch Ratings.

The ratings agency's current base case assumes new vehicle sales to decline by approximately 3 percent in Western Europe in 2013 following an 8.1 percent decrease to 11.8 million units in 2012. This would mean a massive 23 percent fall since 2007.

Structural factors and anecdotal evidence make it uncertain that sales will return to the 1999 peak of 15.1 million units, Fitch said in a research note issued this week. The agency added that the European recovery would be slow at best and could follow the path of Japan, where vehicle sales have fluctuated since 1998 at 25 percent to 45 percent below their peak in 1990.

Furthermore, Fitch noted that owners are keeping vehicles, which are increasingly reliable and robust, for longer and are driving shorter distances. At the same time, the total cost of vehicle ownership has increased and several large cities or countries have taken measures to limit or deter car usage.

Periodic surveys have also shown a declining interest in cars from the younger generation. Cyclical factors, including weak consumer and corporate confidence, high unemployment and tighter credit conditions are making matters worse, Fitch said.

Manufacturers of small vehicles suited to urban conditions and with fuel efficient engines are best placed to outperform, the agency added.

Nonetheless, the economy and new vehicle sales can rebound more strongly than expected. Fitch highlights the fact that auto sales in the US recovered to 14.4 million units in 2012, up 13.4 percent from 2011 and 39 percent from 2009. This was in contrast to previous market assumptions and forecasts pointing to long-lasting depressed conditions.

"The expected outperformance of central and Eastern European markets as they catch up with more developed European markets in terms of car density is likely to offset persistent weakness in Western Europe and offer better prospects than in Japan," Fitch said.

"Government intervention could also support sales at higher levels than underlying and fundamental demand, given the industry's importance to employment and in light of support given in the past," it added.

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European car sales recovery will be slow, says Fitch
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