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Europe Car Sales Lowest in 17 Years

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Car sales in Europe reached its lowest level of 12.05 million units in 2012 since 1995, according to the European Automobile Manufacturers’ Association (ACEA). This indicated a year-over-year decline of 8.2% due to the sagging demand for cars, as highly indebted banks were reluctant to finance new car purchases for customers. The decline was the steepest in the highly troubled euro zone, where car sales dipped 11.3% to roughly 9 million units, according to Reuters.

Car sales in December fell for the straight 15th month and at the fastest pace since October 2010. As many as 799,407 vehicles were sold during the month, falling short of the 2011-level by 16.3%.

Most of the major EU markets registered a double-digit fall in sales in December. Sales tumbled 14.6% in France, 16.4% in Germany, 22.5% in Italy and 23.0% in Spain. The U.K. was the only market that came up with a sales growth of 3.7% in the month.

Sales by Automakers

The U.S. automakers General Motors Company (GM - Free Report) and Ford Motor Co. (F - Free Report) saw the steepest decline in sales among all the major automakers operating in the continent. Each of their sales shrank 27% in December. Meanwhile, Japanese automaker Honda Motor Corp.’s (HMC - Free Report) sales slipped 6.7% in the month.

Among the European automakers, Volkswagen AG (VLKAY - Free Report) – biggest in Europe – recorded a 15% decline in sales in December, driven by a 20% fall in sales of its namesake brand. Meanwhile, PSA Peugeot and Renault each posted a 19% fall and Fiat SpA recorded a decrease of 18%.

Plant Closures and Job Cuts

Most of the major automakers in Europe are resorting to job cuts and plant closures, as it became no longer feasible for them to undertake full-fledged operations in the continent. Unemployment in the EU reached 26 million in November last year, while the unemployment rate increased to 10.7% in the same month from 10% in November 2011.

Among the U.S. automakers, Ford plans to shut vehicle and component plants in the U.K. and Belgium in the next two years while General Motors would suspend car production at its Bochum plant in Germany – which employs 3,100 workers, – in 2016.

Among the European automakers, Renault plans to retrench 7,500 jobs in France by 2016 while each of Fiat and Peugeot has decided to eliminate 1,500 jobs. Among the Japanese automakers, Honda recently announced plans to terminate 800 jobs at its South Marston plant near Swindon in southwest England in the second quarter of 2013.

Europe Versus U.S.

Auto sales in the U.S. grew 13.4% to the five-year high of 14.5 million vehicles in 2012 including a 9% rise to 1.4 million in December last year. A host of macroeconomic factors helped the industry reach the height. They include improving consumer confidence, falling unemployment and improvement in home sales and prices.

Sales were also fueled by strong pent-up demand, due to both aging vehicles (average age of a car reached 11 years in the U.S.) and the need to replace damaged vehicles from Hurricane Sandy. Banks were also friendlier as they offered greater access to loans with lower interest rates.

The automobile industry in the U.S. is expected to scale new heights in 2013 based on improving macroeconomic conditions. By 2014, sales in the U.S. are expected to surpass 15 million units. In contrast, sales in Europe are expected to continue to sink in 2013.

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