Insight: New car demand and residual values in post-PIVE Spain

October 20, 2016

New car registrations in Spain increased by 15% year on year in August 2016 and by 14% in September, according to trade association ANFAC. These were the best August and September performances since 2007.

Electric vehicles and hybrids performed especially well, accounting for 4% of all car registrations in both August and September; they achieved a maximum share of 3% in any other month in 2016. However, these healthy results were to be expected as consumers rushed to take advantage of the Programa de Incentivos al Vehículo Eficiente (PIVE) before it ended on 31July and dealers actually had until the end of September to register any new cars bought using the scheme.

The plan PIVE incentivised the purchase of lower-emission vehicles in Spain. In its latest, eighth iteration, consumers were entitled to a €1,500 discount (€750 from the manufacturer and €750 from the Ministry for Industry, Energy and Transport) on the price of a new car when trading in a car over 10 years old or a light commercial vehicle over seven years old. For larger families purchasing a vehicle with more than five seats, the discount available doubled to €3,000 – this cost also being split equally between the carmaker and the Ministry.

Data from the European trade association ACEA reveal that registrations of alternative fuel vehicles (AFV) in Spain grew by a staggering 68% to 16,771 units in the first half of 2016, largely as result of the PIVE incentives (Figure 1). The UK was the only other market within the European Big 5 to enjoy double-digit growth over the same period and, at 21%, lagged significantly behind Spain. Hybrid electric vehicles (HEV) account for the lion’s share of AFV car sales in Spain and their tally increased by a phenomenal 77% in H1 2016 to 13,867 new registrations. Electric vehicles (EV), comprising battery-electric vehicles (BEV) and plug-in hybrids (PHEV), enjoyed the greatest growth, with registrations exploding by 175% in the first six months, albeit to only 1,815 units.

Figure 1: AFV registrations in the big 5 European markets, H1 2015 and H1 2016

 

Source: ACEA

In the nine months to the end of September, new car registrations increased by 12% year on year in Spain. With the end of the incentive scheme, however, the healthy order intake will undoubtedly diminish, especially for AFVs. In fact, early indications are that the number of orders placed by private consumers is already weakening and market growth is forecast to be more moderate in the final quarter. This sentiment is echoed by Jaume Roura, president of the Faconauto dealers’ association, who said: ‘We are concerned by the stagnation suffered in September in the private consumer and companies channels, which are our reference to know the reality of the market.’

Autovista Intelligence analysts agree with ANFAC’s view that ‘although the car market forecasts are positive, the growth could be more moderate’. There are clear parallels here with the spike in car sales in the Netherlands in December 2015 when tax breaks ended; that was followed by two months of double-digit declines. The spike is not as pronounced in Spain and, with sales still remaining far short of pre-crisis levels in a recovering economic environment, the detrimental impact on the market should be far less intense. Even in a worst-case scenario where registrations fall by 5% year on year during Q4 2016, demand for the whole of 2016 would still be 8% higher than in 2015. For 2017, growth rates will certainly be lower without any form of market stimulus, but a contraction of demand is not expected.

With the exception of 2006 and 2007, when the economy overheated due to the housing bubble, Spain has tended to have lower new car sales per 1,000 inhabitants than other western European markets. With limited supply of new cars flowing through to the used car market, demand is greater than in the other Big 5 European markets and residual values are therefore comparatively high (Figure 2).

Figure 2: EU5, aggregate RV percentage trends (36 months/90,000km), June 2016

Consequently, although the PIVE has proven incredibly successful since it was first introduced in October 2012, Spain’s car parc still remains relatively old and ANFAC is therefore understandably lobbying for a new scrappage programme. However, in its absence, the weaker outlook for the new car market will invariably reduce supply and firm up residual values, especially of hybrids and EVs.

Over the duration of the various schemes, even at an aggregated total market level, residual values have been soft. They fell every month from the launch of the PIVE until June 2013 (Figure 3). Residual values then increased rapidly until the end of 2014, as recovery in used car demand was at odds with the scarce used car supply, but then tailed off again with the launch of the 7th and 8th editions of the PIVE on 2 March 2015 and 16 May 2015 respectively. This pattern was repeated with the extension of the PIVE 8 plan in January, coinciding with falling RVs at the start of 2016.

Figure 3: Spain, aggregate RV percentage trends (36 months/90,000km), July 2011 to June 2016

Looking at the residual values of three key AFVs (the BMW i3, Nissan Leaf and Toyota Prius), these have exhibited far smaller rises in value throughout 2014 than the market as a whole and have stabilised in recent months. In the case of the Toyota Prius, the values have even been declining since early 2015 although this is fundamentally as a result of the model cycle and the introduction of the Prius+ variant than because of any impact from the PIVE (Figure 4). Looking ahead, however, residual values of these models should rise now they are no longer eligible for discounts under the PIVE scheme.

Figure 4: Spain, selected models, RV percentage trends (36 months/90,000km), January 2014 to June 2016

Manufacturers are still left with the challenge of maintaining new car sales, but with residual values expected to gain, attractive finance deals and/or equipment packages could be introduced. A fine balancing act will be required for the foreseeable future in Spain.






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