Economy, Auto

Prospects of European Car Sales After Brexit

Prospects of European Car Sales After Brexit Prospects of European Car Sales After Brexit

Europe’s first-half vehicle sales grew by a stronger-than-expected 9.1%, a gain that was double even the most optimistic full-year forecast made by analysts at the end of 2015.

Nearly every automaker–85% to be exact–competing in Europe increased year-on-year sales during the first six months.

There are big questions marks, however, on whether the upward trend will continue during the final six months of 2016 as Britain’s vote on June 23 to exit the European Union weighed on consumer confidence in the region’s second-largest car market after Germany, Auto News Europe reported.

Although June marked the 34th consecutive month of auto sales growth in Europe, there were some signs of trouble. The June gain was 6.5%, which was the smallest increase since March, and UK sales fell in June for only the second time in more than four years.

The UK’s June drop was in contrast to the region’s other major markets, which all reported sales increases. Germany, Europe’s largest car market, reported an 8% rise in registrations. France’s volume was up 0.8%. Italian sales increased by 12% while car sales in Spain climbed 11%.

Britain’s vote to leave the EU, the so-called Brexit, is expected to slow economic growth in countries using the euro, according to the European Central Bank, which has kept interest rates at or below zero percent as a stimulus.

Prior to the vote, eurozone economic confidence weakened amid questions about how the UK’s exit from the EU would affect the region.

“Drastically reduced consumer confidence in the UK following the Brexit vote will probably result in a significant hit to sales,” Peter Fuss, an automotive analyst at consulting firm EY, said in a report.

“Not least the German carmakers will see an impact in the form of lower exports to the UK, as cars made in Germany get more expensive for British buyers because of the weak pound.”

After the Brexit vote, analysts at Morgan Stanley lowered their prediction for full-year western European car sales growth to 3.7% from 5%. The firm foresees significant slowdowns in the growth for Italy, Germany and France. It also now expects UK car sales to decline 3.3%.

Before the vote, it forecast a 2.5% drop. Looking further into the future, Morgan Stanley predicts European sales will decline by 2.2% next year. Its previous forecast was for 2017 sales to rise 0.2%.

Analysts at ISI Evercore gave much gloomier predictions for the UK car market. It sees sales falling 4.5% this year and 10% in 2017. It previously predicted UK sales would rise 3% this year and decline 2.5% in 2017.

If the predictions are correct, a lot of the gains made by automakers in the first half could be lost. The engine driving a lot of the growth was Italy, as it accounted for about a quarter of the 674,716 additional vehicles sold in Europe during the first six months, according to data from industry association ACEA.

As a result of the sales surge, 19 of the 33 brands tracked by ACEA grew faster than the market. Just five brands recorded a first-half sales decline. The big winners among brands based on percentage growth this year were Jaguar (+102%), Honda (+33%) and Mazda (+28%).

The brands that made the largest volume increases were Renault (+76,951), Fiat (+62,624) and Mercedes (+56,653). These three brands accounted for 30% of the overall market’s growth that boosted the region’s half-year volume to 8,090,870.