Europe Car Sales Slump to Worst June in Decades on Supply Issues
Carmakers registered the fewest new vehicles in the European Union since 1996.
(Bloomberg) -- Carmakers registered the fewest new vehicles in the European Union since 1996 as persistent supply chain snarls and record inflation afflict the industry.
New-car sales in the EU and four other states tracked by the European Automobile Manufacturers’ Association fell 17% to 1.07 million last month, according to a statement. Volkswagen AG was the hardest-hit major carmaker, with registrations dropping 24% from a year ago.
While manufacturers including VW, BMW AG and Mercedes Benz AG said last month the shortage of semiconductors had started to ease, it takes time for any boost in production to flow through to showrooms and enable dealers to work down order books. Manufacturers are also dealing with raw material and energy costs, which are contributing to vehicle price increases.
“The industry will not overcome supply constraints anytime soon,” LMC Automotive said in an update this month. “Another concern relates to underlying demand, which has weakened in recent months as the economic outlook has deteriorated.”
Sales in major markets including Germany and the UK may return to growth this month due to an easy year-ago comparison, according to Bloomberg Intelligence. While that suggests the industry stands a chance of snapping a 12-month streak of consecutive declines, it will be difficult to make up for production losses during the first half. LMC Automotive now estimates Western European passenger car deliveries will drop 6.3% this year to 9.92 million. In January, the market researcher predicted sales would grow almost 9%.
Forecasting demand remains difficult due to risk that energy shortages will worsen. The main conduit for Russian gas to Europe went down for maintenance this week, and Berlin and its allies are bracing for President Vladimir Putin to cut off flows for good in retaliation for sanctions and support for Ukraine.
“An increasing fear developing concerns potential plant shutdowns in Germany related to energy shortages,” Tom Narayan, RBC Capital Markets’s European auto analyst, wrote in a July 5 report. “The concern has more to do with the supply chain (chemical plants in Germany shutting down production of plastics used for car components, etc), and as such, may not impact German OEMs any more than others.”
Carmakers have compensated for lost volume by charging higher prices and focusing on their most expensive and profitable models. But with inflation soaring and consumers cutting back spending, that strategy could run up against limits.
“We are a little bit cautious about the outlook next year,” VW Chief Executive Officer Herbert Diess said in an interview last week with Bloomberg Television. “The world will remain unstable. That’s our assumption, so we have to be a bit cautious.”
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