FRANKFURT (Reuters) -- New-car registrations across Europe were generally lackluster in May after a rebound in the first few months of the year, although sales in Germany and Spain were higher due to incentives and subsidies.
Europe's car market has shown signs of recovery from a six-year slump, but excess production capacity, heavy discounting and incentives continue to distort the true level of demand.
New-car registrations in Germany, Europe's largest auto market, rose 5 percent in May, led by incentive-fuelled sales from carmakers including Opel and Citroen.
"While the year-on-year increase has to be seen in the context of a relatively easy comparison, it is worth looking at the SAAR (seasonally adjusted annual rate) of 3.2 million [sales] -- the highest level since June 2012," International Strategy and Investment UK Ltd., said on Wednesday.
The ISI predicted sales in Germany would grow 3.5 percent this year, adding that based on overall growth this year, the market was "well on track to achieve this."
But German sales actually dropped if two extra sales days in May this year compared with the same month a year ago were excluded, analysts said. This follows a 4 percent fall in sales in April.
"We have seen incentives go up in Germany and the most generous incentives are being offered by Peugeot, Citroen and Opel," Mike Tyndall, an autos analyst at Barclays, said.
Average incentives, or discounts, for Peugeot and Citroen were at 24 percent, while at Opel they were 25 percent, Tyndall said, adding that German sales were further flattered by the fact that registrations in the year-earlier period were particularly weak.
Sales of premium brands Mercedes-Benz and BMW fell 0.5 percent and 5 percent respectively as both automakers review the cost structure of their German operations and stop short of heavy discounting.
Sales of Volkswagen-brand cars rose 2 percent.
Elsewhere in Europe, the market proved uninspiring.
Sales in Italy fell 4 percent from the same month a year ago with Fiat Chrysler Automobiles sales down 11 percent, the transport ministry said. Sales of General Motors' vehicles fell 23 percent in the market.
"The caution we exercised over the modest rises seen in the first few months of 2014 is unfortunately vindicated in the May number which we think is not a sign of slowdown but of stagnation ... no pickup therefore," Filippo Pavan Bernacchi, president of car retailers' group Federauto, said.
In Spain, car sales rose 17 percent, while in France sales inched 0.1 percent higher.
Spain's May sales marked the ninth straight month of increases, car manufacturers' association Anfac said on Monday, as a government subsidy scheme helped to spur buying.