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European car sales are the weakest in two decades, but it could’ve been worse

Reuters/Ina Fassbender
Auto dealers in Europe have seen better days.
By Jason Karaian
EuropePublished Last updated This article is more than 2 years old.

The good news: Auto sales in the European Union were up more than 13% in December. The bad news: Full-year sales in 2013 were down by around 2%, the sixth consecutive year of decline. The volume of cars sold in the EU last year was the lowest since 1995, according to data released by the European Automobile Manufacturers’ Association today.

If not for a late-year surge, an even grimmer sales record would have been set. The renewal of a trade-in subsidy scheme in Spain is helping boost sales in an otherwise moribund economy. The practice of “self-registration,” where new cars are bought by dealers and then sold to customers as “used” at a hefty discount, remains rife. Buyers can routinely purchase cars for a fifth off the retail price in France, Germany and the UK, according to Automotive News Europe.

Analysts think that sales will eke out growth this year, although discounts and other giveaways won’t make it a particularly lucrative year for most carmakers. In addition to weak revenue growth thanks to discounting, European auto firms are saddled with bloated costs; only around 40% of the continent’s largest auto plants are busy enough to break even, according to AlixPatners.

This will push carmakers to extremes—that is, a focus on the high-margin luxury market or low-frills, bargain-basement models. Thanks to the recession-proof ultra-rich, high-end manufacturers like Jaguar Land Rover, Rolls-Royce and Bentley all reported record sales in 2013, including robust results in Europe. At the same time, the latest statistics also show solid momentum for budget brands like Dacia, Seat and Mazda. For the mid-range manufacturers stuck in the middle, like Fiat, Ford and Peugeot, the pain will persist.

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