The European Car Market.

Car sales are widely regarded as an indicator of short term economic growth, and in the enlarged European Union (EU27) vehicle production grew 4.0 percent in the first three months of 2007 (compared with the same period 2006.) The spring "Economic Report" published on June 19, 2007 by the European Automobile Manufacturers Association (ACEA) based in Brussels, called the increase "dynamic."

Unit sales amounted to 5.1-million vehicles, 87 percent of which were passenger cars. Vehicle registrations were up "slightly" at 0.3 percent.

The ACEA report revealed a striking pattern in the registration statistics. There was a marked difference between registrations by new member countries compared with vehicle registrations in Western Europe.

For the first three months of 2007, new EU member countries registered 14.9 percent vehicles when compared with the first three months of 2006. In Western Europe, vehicle registrations declined minus 1.0 percent.

The ACEA said that the difference was mostly accounted for by a decline of minus 10.0 percent in Germany, the EU's biggest economy. The sharp decline reflects the oversold 2006 market-oversold in anticipation of the 3.0 percent increase in Germany's VAT tax, which took effect on January 1, 2007.

As the German VAT tax increase date approached, a consensus developed that the effect of the tax would be short lived. But, at least in the automotive sector, where consumer savings would be significant when purchases were made before the tax increase, the effect of the tax increase clearly lingers.

In Italy, the market situation is reversed, but for very different reasons. At the end of 2006 the Italian government provided its country's consumers with incentives to replace their older, environmentally unfriendly vehicles with new cars that meet higher environmental standards.

As a result, new car registrations were up 4.3 percent in Italy. The United Kingdom (UK) market also showed an increase in new vehicle registrations, 2.9 percent.

Registrations in France declined minus 1.4 percent, and registrations in Spain were down too, falling minus 0.7 percent.

A separate June 14, 2007 ACEA report on new passenger car registrations shows EU27 registrations for May 2007 down minus 1.6 percent. The ACEA concludes: "European automobile demand in 2007 is likely to remain at virtually the same level as last year."

CONSUMER MARKET INSIGHTS: