After a robust 2016 surprised most forecasters, the growth of Europe's auto market is expected to slow considerably this year after three consecutive years of strong gains. The negligible increase in annual volume will be caused by an anticipated slump in UK car demand resulting from Britain’s decision to exit the European Union as well as political uncertainty caused by elections this year in two key EU markets.
Analysts currently estimate European sales will edge 1 percent higher in 2017, a sharp drop off from last year's 7 percent rise. Automaker bosses, however, are a bit more optimistic. "We see modest growth next year," Ford of Europe CEO Jim Farley told reporters at the end of November. "The key markets to watch are the UK and Germany. We have a lot of elections around Europe and a lot can change of course."
Brexit is expected to depress car buying in the UK as general uncertainty, slower economic expansion and manufacturer price hikes hurt demand. Sales in Europe's second-largest market are forecast to fall more than 7 percent this year to 2.5 million vehicles, according to IHS Automotive.
Meanwhile, France is due to vote on a new president in May to replace Francois Hollande, who will not run for a second term. Matthias Wissmann, who is president of the German automotive industry association (VDA) and a former German transportation minister, said he was hopeful that far-right candidate Marine Le Pen could be defeated in the upcoming election because of surging support for her opponent, Francois Fillon. A Fillon win would put to rest fears that Le Pen, the self-described "Madame Frexit," would pull France out of the eurozone, effectively ending the use of the single currency.
In Germany, this autumn's general election could force political parties to forge alliances with more than one junior partner to form a stable government. Such a move may cause German fleet customers to postpone major purchases in the months ahead, according to analysts.
Despite what could happen in Germany and France, market watchers say that the overall health of Europe's car market will depend on the performance of the UK in 2017. The weak pound fundamentally changes the equation for manufacturers that spent the last five years using the UK as a crutch for profits by exporting as many vehicles as they could to reap the currency gains.