LONDON -- Western European new-car sales will rise marginally this year and in 2005, analysts agree.
That's welcome news for beleaguered automakers and suppliers after four straight years of declines. But a robust recovery back toward a 1999 peak of 15.1 million sales is unlikely soon.
"It's a flat market," said Nigel Griffiths, analyst for Global Insight in London. "Sales this year are probably as good as they are going to get right now."
Banca IMI's Sabine Blümel
"Reported sales figures are increasingly detached from reality," said Max Warburton, executive director of global investment research at Goldman Sachs. "Real demand is 11 or 12 million units."
Chasing fleet sales
For example, many Spanish new-car transactions actually are self-registrations by dealers that ship the cars for resale as 0km used cars in Germany, he said.
Automakers also offer short-term deals for fleet buyers, which produces many late-model, low-kilometer models that effectively displace ordinary used-car traffic, he said.
"They shove them into fleets, then into used cars," Warburton said. "Real transactions are falling."
Intense competition is preventing price increases for new cars while the cost of manufacturing is rising, said Arndt Ellinghorst, head of European automotive research for Dresdner Kleinwort Wasserstein Group in Frankfurt.
"Raw material costs are up, fleet complexity is up, but revenue is down," he said.
Steel prices are especially high and likely to remain that way this year, said Griffiths.
"That will limit what manufacturers can do on incentives," he said.
Yet European automakers are increasingly using incentives to drive sales. It's not as intensive and constant as in the US market, but it is growing, Griffiths said.
Over the past 18 months, the pattern has been heavy incentives in the final month of each quarter, followed by a lull in the first month of the next quarter.
But seasonally adjusted sales dip only 6 percent to 7 percent the month after heavy incentives, showing buyers haven't spotted a pattern, he said.
"Consumers don't seem to have caught on yet," Griffiths said.
Central and eastern European markets will grow faster -- perhaps 3 percent to 5 percent annually -- than western Europe for several years, analysts said.
But despite pent-up demand for vehicles, potential is limited by economic growth, said Sabine Blümel, London-based auto analyst for Italy's Banca IMI.
"They are mature economies with aging populations," she said. "These are new [EU] countries, but they are not new economies."