MILAN Want to know if the real economy is really recovering in Europe? Take a look at van sales.
Latest business confidence indicators such as Germany's Ifo index may be showing signs of life but commercial vehicle sales, gaining importance as a key economic indicator, are moribund.
"If you're a small business, you're still heavily dependent on bank lending and ... the banking community is undercapitalised, worried about defaults," said Ken Wattret, chief eurozone market economist at BNP Paribas.
"You would ... wait and see if there were any more concrete signs of an improvement in the economic situation and that could take quite some time."
Van and truck makers who reported first-half results last week cast a gloomy picture for the second half. Scania said truck orders fell 55 percent in the first half and demand was likely to remain low in the third quarter.
Iveco, which makes industrial vehicles at Fiat, expects western European truck demand to fall as much as 40 percent this year with no recovery until the fourth quarter.
"This is a market which is obviously associated with the economic cycle and until that picks up there'll be no recovery in volumes," Fiat Chief Executive Sergio Marchionne told analysts last week.
Truck makers' association ACEA reported on Friday that van sales fell 33 percent in Europe in the first half, after a 37 percent slide in the first five months -- barely stabilising.
And Volkswagen's head of commercial vehicles, Stephan Schaller, told Reuters there is "a moderate upward movement, but at a low level."
"I expect that there will be no substantial change next year either," Schaller added in the interview.
Economists include van sales in transport investment forecasts along with spending on trucks, buses and trains, and the picture there is equally grim.
"This year we will see a drop of unprecedented magnitude" in transport investment, said Marco Valli, economist at UniCredit Mib. "It's very ugly," he added.
Valli said he expected transport investment in the euro zone to plunge almost 20 percent this year -- a desperate fall compared to the previous downturn, when transport investment was reined in 3.4 percent in 2001 and 1.3 percent in 2002.
Van sales have been considered secondary indicators until recently as they form part of overall investment figures which themselves weigh less for growth than consumption.
But the financial crisis is prompting adjustments in assessments of traditional indicators.
Auto sales, for example, have been seen as a big indicator for consumption but current incentives from many governments for car purchases divorce figures from underlying demand.
West European car sales rose 4.6 percent in June but, as analysts are quick to point out, much of this was because governments across the area have put in place tax breaks to trade in cars for more environmentally friendly models.
Business sentiment surveys, such as Germany's Ifo index, are also being given more scrutiny.
The latest Ifo index, released on Friday, showed business sentiment rose for a fourth month running in July, prompting economists to hope the economy is strengthening.
But analysts said it could make sense to read sentiment indicators alongside hard sales numbers such as truck shipments.
"What the commercial vehicles data will tell you is whether it's just a shift in sentiment rather than a shift in behaviour," said BNP's Wattret.
The European Central Bank has said loans to businesses and households grew at their slowest rate on record in June and loans are what business uses to buy vans.
RELUCTANT TO COMMIT
Wattret said business confidence surveys may also focus on larger companies with easier access to capital markets.
So small businesses could find it hard to get loans and be very reluctant to commit to any kind of capital spending.
A basic Renault Kangoo van can cost about 11,000 pounds while Iveco's Daily van range has prices around 15,000 pounds, according to website data.
Tim Urquhart at IHS Global Insight agreed.
"Light commercial vehicle sales and especially truck sales are hugely dependent on finance -- they're huge capital items," he said. "They're not bought with piles of cash, companies have to go out and raise the finance."
Industry groups are already lobbying for an easing of credit conditions for their customers.
"The lack of credit is a particular problem for our industry. We have many customers that could show a valid business case for investing in new vehicles but are unable to finance these investments due to the overall lack of credit facilities," ACEA said in a recent statement.
Deutsche Bank analysts said in a recent note they expected the truck market in Europe to remain weak until 2011 with deliveries down about 50 percent this year.
As Wattret said, it depends if you look from the bottom up or the top down.
"We'll probably pay a bit more attention to commercial vehicle sales in future," he said.
(additional reporting by Helen Massy-Beresford in Paris, Christiaan Hetzner, Jan Schwartz and Arno Schuetze in Frankfurt, Editing by Sitaraman Shankar)