January 2, 2014 / 6:07 PM / in 4 years

Car sales rise in Southern Europe lift recovery hopes

Holiday lights hang from trees to illuminate Champs Elysees in Paris as rush hour traffic fills the avenue leading up to the Arc de Triomphe November 22, 2010.Charles Platiau

FRANKFURT/PARIS (Reuters) - A rise in December car sales in France, Italy, Belgium and Spain suggested a pick-up in demand in southern Europe, although not enough to avoid a sixth straight annual decline in the overall European market in 2013.

Hit by the financial crisis and resulting economic slump, the European auto market is set have contracted last year by 25 percent, or 4.3 million vehicles, from 2007 levels, analysts at Moody's Investors service said.

Industry data on Thursday showed new car registrations last month rose 9.4 percent in France, 18.2 percent in Spain, 12.3 percent in Belgium and 1.4 percent in Italy, in a tentative sign that the slump in demand may have bottomed out.

Arndt Ellinghorst, automotive analyst at ISI Group, said he was optimistic.

"There is strong evidence of a recovery (for European car sales), driven by low financing costs, improved residual values and used car prices and much better fuel economy of new cars."

The surge in French car sales in December was thanks largely to a 38-percent jump in registrations by Renault, data supplied by industry association CCFA shows.

New car sales in Italy, Europe's fourth-largest car market, rose 1.4 percent in December from the same month a year ago, to 88,705 vehicles, Italy's transport ministry said on Thursday.

In Spain, Peugeot topped sales, registering 5,333 vehicles in December, helping new car sales to rise 3.3 percent in 2013, rebounding from a 13.4 percent drop in 2012, car manufacturers' association Anfac said on Thursday.

"We come in to 2014 with a little more optimism and with a resolution that most of our companies move in to the black and maintain employment levels," said Jaume Roura, head of Spanish car dealer association Faconauto.

Evidence of Recovery

Moody's Investors service expects demand for light vehicles to grow by 3 percent in western Europe in 2014 after a 5 percent slump in 2013.

"However, economic fundamentals do not yet indicate a sustainable upward trend," Moody's analyst Falk Frey said in a note.

Thursday's data showed that in France car sales slumped 5.7 percent in 2013, the CCFA said.

However, even a return to sluggish growth will do little to alleviate chronic excess capacity, industry officials warn.

"We're still in a very weak market," said CCFA spokesman Francois Roudier. The coming year should bring stability at a very low level, he added.

The surge in car sales mirrors growth in manufacturing across the euro zone.

Euro zone manufacturing grew at the fastest rate since mid-2011 in December on brisk business in Germany and Italy, setting the stage for a solid start to the year after a tumultuous 2013, a survey showed on Thursday.

Markit's Eurozone Manufacturing Purchasing Managers Index (PMI) rose to 52.7 in December from November's 51.6, confirming an early estimate and marking its best reading in 31 months.

Additional reporting by Noelle Mennella in Paris, Paul Day in Madrid, Agnieszka Flak in Milan and Robert-Jan Bartunek in Brussels; editing by David Goodman and Tom Pfeiffer

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