Even a European economic recovery might fail to reignite car sales

European car sales are down sharply this year, will fall a bit more in 2013, and are unlikely to reach pre-recession heights any time soon as the appetite for new cars and driving, peaks and recedes.

There is still a faint possibility that European governments might come to the rescue with another scheme to finance scrapping of old cars for new ones to boost demand,but don’t hold your breath on that.

Car sales in Western Europe slid 10.5 per cent in November to 896,000, according to LMC Automotive, which expects a fall of eight per cent for the whole year. LMC expects another decline next year of 3.1 per cent. Consensus is closer to a four per cent decline.

France showed a spectacular fall in November – down nearly 20 per cent – while Germany, the biggest market, slid 3.4 per cent.

Europe’s weak economy shows no sign of recovery. The European Central Bank (ECB) announced Thursday that the 17-member Eurozone’s gross domestic product is expected to contract 0.5 per cent in 2012, and another 0.3 per cent in 2013. Growth will return in 2014, but only by 1.2 per cent, the ECB said.

But investment bank Morgan Stanley believes that car sales in Europe won’t react much even when the economy returns to health.

“The region may be at ‘Peak Car’ – the point of saturation of car usage and ownership. If we’re right, Europe may face a “car-less” recovery in the next decade, with stagnant vehicle sales even when the macro (overall economy) improves. We cut our 2013 forecast to minus four per cent from minus one per cent, but it is our 10 per cent sub-consensus longer-term view that may concern E.U.-geared manufacturers and suppliers,” said Morgan Stanley analyst Stuart Pearson in a report.

Pearson said car ownership will become less popular because of demographics in Europe with driving-age citizens declining, and those remaining going fewer miles. The fact that modern cars are more reliable allows buyers to put off replacement.

This weak demand means competition for sales will ratchet up, favouring strong manufacturers like Volkswagen of German. Laggards like GM affiliate Peugeot-Citroen of France, expected to lose almost $2 billion in 2012, will continue to struggle.

LMC Auto analyst Jonathon Poskitt does see some positive factors though. The feared breakup of the euro currency zone and the ensuing chaos seems to have been thwarted, while there is still a possibility that Europe governments might come up with another cash-for-clunkers bailout scheme.

“Scrappage schemes would still fail to tackle the more fundamental issues of over-capacity in the industry and ongoing economic headwinds, and these schemes may be politically harder to justify this time around. One cannot rule out wider adoption of such schemes just yet though,” Poskitt said.