The ACEA data (see here) shows that passenger car demand in the EU rose for the first time in six years during 2014, whilst December was also the 16th month in succession of gains, with registrations having grown during the month by 4.7% y/y to 951,329 units

The growth brings to a close the longest period of decline for passenger car demand in the region.

However, while Carlos Da Silva, manager for IHS Automotive's European light-vehicle sales forecast has said that this is a ‘welcome relief’ for the market, the market is one that remains fragile and is ‘not a fully cured patient’. He notes that the growth stemmed from ‘two main pillars, one virtuous, the other one certainly less so’.

On the former, he points to pent-up demand and the fleet renewal needs, stating: ‘This was at play in all countries but much more evident in those Southern markets that experienced impressive sales collapses in the recent past. These markets had reached such lows that, nearly independent of the economy, they had to rebound. By and large, this is mostly a positive factor: demand is fuelled by natural means, customers that do need new cars.’

However, on the other side Mr Da Silva says that these gains have also been driven by incentives. While the evidence of price discounts and aggressive sales policies – which have been an integral part of the European landscape for a long time – explain the significant increase in Spain and, for a great part, the continuous growth in the UK, there are also what he refers to as ‘more disguised practices’. This includes registrations made to rental businesses, by dealerships and self-registrations. Da Silva said that while these practices are nothing new, ‘they have definitely on the been on the rise lately, and they do influence the final result’.

He points to Germany as an example, where 40% of sales are made through those indirect channels, ie not directly to private customers or companies and ‘to make matters worse, 1 out of 4 of said indirect sales are manufacturers’ own registrations: that makes for a huge lever. The full year growth sounds less healthy in this context’. In a similar vein, ‘nearly 20% of the Italian market was composed of rental cars in 2014 [13% more than in 2013]. Without them, we wouldn’t be talking of recovery in Italy’. While these are classified as sales, they have a distorting effect on renewal cycles and on overall prices – transactions and used car prices- and ‘as such they are much more detrimental in the medium term’.

Rounding off, Da Silva has said that ‘2014 should be taken with relief and satisfaction. However, by any means, this growth should not be misinterpreted: the foundations for a flourishing car market are yet to be built. Right now, the patient is still limping, not starting to run on both legs!’ This is reflected in IHS Automotive's forecast for 2015 which shows that registrations are expected to grow by around 2.5% y/y to almost 12.9 million units. The market remains behind the pre-crisis average of around 15.2 million units.

IHS added that it also does not expect the market returning to these levels at least by the end of the decade, when we see registrations standing at around 1 million units below that level.