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 Discounts outgrew first-quarter sales, according to the data seen by
Reuters, casting doubt on the strength of the recovery and the
earnings outlook for carmakers in the region.
Registrations rose 10.4 percent in March, the Association of
European Carmakers said, rounding off an 8.1 percent gain for the
first three months, after six straight years of contraction.
But average retail incentives jumped 12 percent to almost 2,750
euros ($3,800) per vehicle in the five biggest markets, the findings
of a major market researcher show.
"There should be significant concern about artificial growth," said
Ernst & Young <ERNY.UL> senior automotive partner Peter Fuss, citing
discounts, government incentives and cut-price sales of unused
vehicles as 'nearly new'.
The industry's bottom line "continues to be under severe pressure",
he said. Ernst & Young was not involved in the market research.
PSA Peugeot Citroen <PEUP.PA> saw its European sales volume rise in
line with the market last month and for the first quarter overall.
The French carmaker — which disappointed investors this week with a
recovery plan targeting a 2 percent operating margin for 2018 — is
also among the heaviest price-slashers.
Retail discounts topped 3,000 euros per Peugeot vehicle, according
to the survey data, and more than 3,750 per Citroen across Germany,
Britain, France, Italy and Spain, where combined registrations grew
slightly slower than Europe as a whole.
Mass-market carmakers in the region are still struggling to cover
the fixed costs of excess capacity, including unused production
lines and underemployed workers.
And while the market is expected to grow about 3 percent in 2014,
forecasters say sales are unlikely to return to pre-crisis levels
for years. Pricing, as a result, may never be the same.
"In the wake of the 2008 financial crisis, consumers are without a
doubt more value-sensitive," said Allan Rushforth, Hyundai's
<005380.KS> head of European operations. "For the moment the
incentive levels are at an all-time high."
Peugeot's latest 208 subcompact attracts a discount of 17 percent in
France — with an old car traded in — and 20 percent at German
dealers including online car supermarket Auto Eff Eff.
The same outlet offers Volkswagen's <VOWG_p.DE> recently revamped
Golf compact for about 12 percent off list price in its 1.2-litre
Comfortline version.
The VW brand, whose European sales rose 5 percent in March and 4.3
percent for the quarter, saw the biggest increase in retail
incentives to nearly 2,400 euros per car — up by one third but still
well short of the industry average.
With most at stake in battered southern European markets, Fiat <FIA.MI>
and Peugeot have led the sector's share-price rally this year to
post respective gains of 45 percent and 39 percent, fuelled by
rebound hopes.
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But deepening discounts may give pause to investors who had rushed
to play the recovery. Cutting Peugeot to a 'neutral' rating from
'strong buy' on Monday, Erich Hauser of ISI Group said its revival
plan relied too heavily on pricing gains.
"Purging the sales force and customers of incentives will take
years," the London-based analyst said.
ISI Group nonetheless expects discount levels to stabilize, after a
5 percent March gain in German used-car prices.
"While used-car prices might not be a perfect yardstick for new car
pricing, we believe it has predictive value," the brokerage said in
a recent note.
No-frills cars powered a 19 percent surge in Renault's <RENA.PA>
quarterly sales, even as France's No.2 carmaker kept own-brand
incentives in check at about 2,350 euros per vehicle.
General Motors' <GM.N> Opel division and Ford <F.N> both slashed
more than 3,500 euros off each vehicle on average, while increasing
quarterly deliveries.
Ford's European sales grew 14 percent in March and 12.1 percent for
the quarter — more than twice the rate at GM, hampered by the
Chevrolet brand's withdrawal from the region.
Another German online retailer, Neuwagen Experten Nord, is offering
the Ford Fiesta small car for 7,960 euros in its Ambiente version,
or about a third off list price. Besides recording the sharpest
increase in retail discounts, Europe's largest auto market showed
other worrying signs.
According to consulting firm Dataforce, a full 30 percent of German
registrations were demonstration vehicles — registered by
manufacturers to their own dealers and sold as nearly new, often at
a loss.
By comparison, such 'self-registrations' accounted for less than 9
percent of sales in Britain and 14 percent in France.
"Discounts and self-registrations are anticipated to decline only
gradually as economic fundamentals improve and normal levels of
demand set in," Ernst & Young's Fuss said.
($1 = 0.7243 euros)
(Additional reporting by Edward Taylor in Frankfurt and Gilles
Guillaume in Paris; editing by Erica Billingham and Tom Pfeiffer)
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