Luxury Carmakers 'Stabilizing' In Europe

LONDON -- Luxury carmakers appear to be moving ahead of their midmarket counterparts in Europe. Analysts at investment bank JPMorgan say premium car sales in western Europe are finally finding a bottom.

"The share of total luxury car sales in Western Europe continues to improve, month-on-month, to 16.3% in June, versus 16.1% in May 2009 and 15.9% in April 2009," JPMorgan said in a note to clients, adding that demand for the sector was stabilizing.

Earlier this month, Ian Robertson, BMW's sales and marketing head, said the company was "seeing the first signs of a slight recovery on automobile markets. We will have to wait and see if this trend is sustainable."

But the picture remains grim for the mass market, despite a pickup in demand thanks to government scrapping schemes across the continent, JPMorgan said. "We expect results this week by PSA, Daimler, Renault and Volkswagen to be mostly positive, with auto profits likely helped by the volume boost from various European scrapping schemes," the bank forecasts.

Scrapping schemes, or the European version of the U.S. "cash for clunkers" program, have been introduced continent-wide, slowing losses within the auto sector in France while boosting sales in Germany.

Yet the investment bank warned that the positive effect of these incentives were probably only temporary and that demand for midrange vehicles in Europe could start dropping towards the end of 2009. "We continue to expect car sales to moderate towards the end of the year, suggesting 2010 earnings may struggle to show significant year-on-year improvement," the bank said.

JPMorgan doesn't expect overall auto production to improve significantly in the fourth quarter of the year, despite estimates by CSM Worldwide, an automotive market forecasting service, that production will rise 3% above the second-quarter figure. "Our bias is to think that production in the fourth quarter may not improve significantly versus the second quarter of 2009 given risks of a volume slowdown in Western Europe as the appetite for scrapping schemes moderates, especially in Germany," JPMorgan wrote.

Shares of Daimler ( DAI - news - people ) fell 1.1% while shares of BMW ( BAMFX - news - people ) fell 0.2% in Frankfurt on Tuesday. Renault ( RNSDY - news - people ) fell 1%, and shares of PSA Peugeot Citroen ( PEUGY - news - people ) fell 0.3% in Paris.