Analyst Insight by Neil King - Analyst, Automotive
Two persistent questions in the European automotive industry are whether car sales have finally bottomed out in the region and if they will ever return to pre-crisis levels. As private car purchases are discretionary in nature, I thought it interesting to consider another sector that relies upon discretionary purchasing as opposed to necessity buying; luxury goods. In comparing the retail value sales growth of luxury goods per household between 2004 and 2012 against the performance of consumer expenditure per household on the purchase of motor vehicles, there were two notable findings.
First, luxury goods sales per household already recovered back to 2004 levels in 2012 in France, Germany and Italy and are only slightly down in the UK, although they are still over 20% lower in Spain. Second, the recovery of the luxury goods sector is stronger in each country than that of consumer expenditure on the purchase of motor vehicles, which remained at least 10% off the 2004 level in 2012 in the EU Big 5, with the exception of Germany, which was down by 9.9%. This naturally suggests that the propensity to spend on luxury goods has recovered from the crisis better than consumers’ inclination to purchase motor vehicles. In fact, luxury goods themselves may be partly responsible for the sluggish recovery of the European automotive sector as consumers seemingly prefer to indulge in luxury items than committing to on-going repayments for a car.