European car sales fall to 20-year low on unemployment

Shrinking Market

“The main difficulty is that the U.K. market is the only one that supports European demand because the German one is worse than expected,” said Thomas Besson, a Paris-based analyst at Kepler Capital Markets. “That being said, consumer confidence is improving everywhere in Europe except in France and Italy, and this is very encouraging.”

Western Europe’s market will probably shrink to about 12 million vehicles in 2014, a 29% decline from the pre- crisis peak, and may stagnate at that level for the foreseeable future, consulting company AlixPartners said in a statement. High youth unemployment, an aging population and the declining value of the car as a status symbol indicate the drop in demand is structural, Managing Director Elmar Kades said.

Capacity utilization at European automotive factories is currently about 67%, according to estimates from LMC Automotive, which provides industry analysis.

“Given current production levels and the worldwide demand for European vehicles, stocks are still too high in the region and are likely to remain too high at the end of the first half,” said Denis Schemoul, a Paris-based IHS Automotive analyst.

Investor Confidence

Still, investor confidence in Germany, Europe’s largest economy, rose in June amid signs its recovery is gathering pace. The ZEW Center for European Economic Research in Mannheim said today that its index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased to 38.5 from 36.4 in May.

Elsewhere in the EU, U.K. inflation accelerated more than economists forecast in May as a record jump in air fares for the month helped extend its persistence above the Bank of England’s 2% target.

The euro-area recession has increased pressure on the bloc’s leaders and the ECB to find ways to spur growth.

The ECB, which cut its benchmark interest rate to a record low of 0.5% last month, is considering further non- standard monetary policy tools and will deploy them if circumstances warrant, President Mario Draghi said today.

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