Ford of Europe’s Peter Fleet practically telegraphed the good news to come when he spoke with reporters in mid-April. Lower unemployment figures and a drop in oil prices have helped put more money into the pockets of customers, who in turn purchased new cars at rates the carmaker had not foreseen. “Clearly there is underlying strong demand coming through from the improving economic environment and consumer sentiment,” the U.S. automaker’s vice president of European sales said during a conference call, citing an array of bullish leading indicators. Within weeks, Fleet had raised his forecast for Ford’s 20 key European markets by 400,000 to a range of 15.2 million to 15.7 million vehicles for 2015.
The picture is indeed slowly brightening for Europe’s economy. Industry association ACEA reported demand for new passenger cars in the EU increased for the 20th consecutive month in April and four-month sales were up 8 percent. Sales in Europe remain pivotal as they represent a major source of revenue for virtually all European carmakers, despite their international diversification, Fitch Ratings said in a May 21 report.
Private consumption fueled an acceleration in eurozone economic expansion to 0.4 percent in the first quarter versus the previous three months, eclipsing the UK’s 0.3 percent gain and the even more tepid growth in the U.S. The European Central Bank has helped play a supporting role, penalizing banks that don’t loan money out to businesses and consumers while printing 60 billion in freshly minted euros every month to pump into the economy. This move has helped revive dormant consumer prices and stave off the risk of deflation.
But not all executives are convinced that this higher volume will translate into materially higher profitability. “So far this year the European market had a growth that has been more quantitative than qualitative,” Peugeot CEO Maxime Picat told Automotive News Europe. He said Spain’s car market has been pushed by margin-eroding incentives while growth in Italy mainly came from rental car agencies preparing for the World Expo in Milan that began in May. Meanwhile self registrations, a way of stuffing the retail channel, remain near historical highs in Germany.
The stronger-than-expected rebound in volumes hides the fact that Europe continues to remain a market where only the strongest can squeeze out a profit. “Remember that European ‘sales’ are actually just ‘registrations’ – and OEMs can put number plates on cars without having found buyers. Sales in Europe are also heavily affected by fleet and other corporate buyers, who enjoy huge discounts,” wrote Bernstein analyst Max Warburton in mid-May, calling the faster-than-expected recovery “patchy” with added volumes that are largely low-margin. “Pricing remains tough for hatches and sedans as everyone seems to want an SUV.”