European Auto Market Slightly Improves, Discounts Still Persist image

After an increase of 7% in new car sales in Western Europe during the first quarter, some market watchers have increased their full-year forecast, while others are still cautious.

Although recovery is expected inEurope, economic risks are still possible and the car discounting continues. During the 6-year European slump, mass-market automakers such as Ford, Opel, PSA Peugeot Citroen and Fiat have lost billions of euro each year.

HIS said it will keep its 2.4% sales increase prediction for this year in Western Europe, while increase sales in the UK last month, motivated LMC Automotive to rise its forecast to 3.5%, from 2.5% declared at the beginning of the year.  Analysts see the EU economy increasing 1.5% in 2014, compared to 2.6% in the US.

The situation in Southern Europe is still uncertain, as high levels of unemployment in Spain and Italy means that people cannot afford to buy new cars and that automakers still rely on deep discounts. Auto sales in Europe last year reached 12.3 million units, compared to 16 million in 2007.

Last month sales in the UK increased a remarkable 18%, helped by a boom in wage hikes and housing market, but also by discounts, declining inflation, increasing consumer confidence and financing plans. Although Germany saw a rise of 6%, this was caused by deep discounts, automakers being forced to reduce sticker prices by 11% or 12%.

“Pricing across Europe has been damaged by the crisis but it seemsItalyis worse than most,” wrote Bernstein Research.