Auto Sector in Europe Revives but Slowly and with Issues

Europe's auto sector is on the mend. While a number of countries are still showing erratic behavior in month-to-month sales, the German Association of the Automotive Industry (VDA) reported a strong rise in auto sales, led by the countries in Western Europe.

In the table we've applied the VDA estimate of EU-wide sales gains, which has been reported in the press, to levels the data one year ago to create an estimate for July for EU-area sales for comparative purposes. The July percentage gain for the EU is, therefore, an estimate, but the figures for all of the countries in the tables are derived from hard data that they have reported.

The chart at the top creates the defining profile of the recovery of the European automotive sector. It shows that there has been a very steady up-creep in the pace of year-over-year sales and that the countries portrayed in the chart now show an upward thrust with values approaching zero, or surpassing zero, for year-over-year percent changes -- as is the case for the UK.

The country with the clear strong auto sector continues to be the United Kingdom. UK sales rose 1% in July. Sales/registrations are higher by 12.4% over 12 months, trailing slightly the gains that we see in Spain. Spain's year-over-year sales are up by 15.8%.

Italy continues to struggle and has the worst auto sales year-over-year. In fact, the Italian auto sector is the poster child for how not to make industry adjustment. Rather than closing factories, Italian automakers are still largely paying workers to stay home and to not work. In contrast, and of course under extreme duress, US automakers have downsized, fired workers, shuttered plants, and largely reinvented themselves to improve their standing - albeit at a smaller size and with government loans. While European auto sales are starting to gain ground (or to lose less ground, in some cases) the European auto industry remains under continuing distress.

'Recovery' of the 'auto sector' in Europe for the moment is much more story of the recovery of consumer demand, improved economic conditions, and improved economic expectations than it is a story about any revival or repair to the supply side of that still-beleaguered sector. European industry still has a long way to go, and unless it makes that journey, European demand will also fall into decay. Europe's so-far-so-good story of auto sector revival is definitely one with a huge asterisk attached and an unsure future -- despite its apparent trend of improving sales.