Demand for new cars in recession-bound Europe fell to a 17-year low in 2012, leaving mass market manufacturers little hope for this year as they try to cut costly excess factory capacity and aggressive discounting dents their margins.

Registrations data released yesterday also showed the biggest annual drop since a 16.9 per cent downturn in 1993, highlighting the crisis for automakers in Europe. Consumers are fretting over austerity measures, job security and rising living costs, and those who want to buy new cars are struggling to secure credit.

Even Germany’s mighty Volkswagen suffered a drop in sales, according to the figures from the European automotive industry association ACEA. However, South Korean brands Hyundai and Kia, which are making an aggressive push in Europe, proved it is possible to expand sales during a downturn.

Peter Fuss, senior advisory partner at Ernst & Young’s Global Automotive Centre, said an industry practice of registering new cars before offering them as used vehicles at a discount was flattering even the dire new sales figures.

“The decline is much worse than the statistics would have us believe as sales figures for the year were artificially inflated as a result of self-registrations by dealers and automakers, especially in Germany, the region’s biggest market,” said Fuss.

Mass market carmakers are cutting jobs in under-used plants across Europe, with Renault the latest to announce job losses, following Honda, Ford, PSA Peugeot Citroen and Opel.

New car registrations fell 8.2 per cent to 12.05 million vehicles in 2012, the lowest level since 1995, ACEA reported. Losses in all major eurozone economies, combined with two fewer working days on average, sent European Union registrations tumbling 16.3 per cent last month to 799,407 vehicles, it added. This marked the worst plunge in 26 straight months – since October 2010.

The industry tried to satisfy more robust demand for second-hand cars through the self-registrations.

Nearly 904,500 vehicles, or 29.3 per cent of the new car market, were registered last year either to car manufacturers themselves or their dealers in Germany, figures from Frankfurt-based Dataforce and the German Federation for Motor Trades and Repairs showed.

“Further, to prevent a freefall in sales, automakers and dealers offered record discounts, which are likely to put a lot of pressure on their margins,” Fuss added.

Even the German economy is suffering from the eurozone recession. In the final quarter of last year, it shrank more than at any point in nearly three years.

Among the worst hit last month were mass market stalwarts including US carmakers Ford and General Motors, where group sales each fell roughly 27 per cent. GMT’s Chevrolet brand posted an even weaker month than its ailing sister Opel.

Even Volkswagen, which was performing better than its peers earlier in the year, saw sales of its core VW brand fall 22 per cent. The December plunge at its luxury brand Audi nearly matched that.

However, Hyundai and Kia gained 10.5 per cent and 6.8 per cent, respectively. The brands have been gaining ground, helped by a European Union Free Trade Agreement with South Korea, as they build a reputation for affordable small cars with long warranties.

Britain was also a brighter spot where the 2012 market grew 5.3 per cent to a four-year high, helped by self-registrations, aggressive discounting and a wide range of financing deals allowing drivers to pay a fixed monthly cost, eliminating the risk of buying a car outright.

“We haven’t seen the levels of discounting we’ve seen in 2012 for quite some time,” said John Leech, KPMG’s UK head of automotive.

Paul Everitt, chief executive of UK auto industry body SMMT, said “pent-up demand” helped British sales as habitual new car buyers who had stayed out of the market for the past few years began returning to the showrooms.

However, demand for new cars last year remained down about 15 percent from pre-recession, 2007 levels.

The European outlook is subdued for this year. Forecaster LMC Automotive estimated a 3.1 per cent drop in western European sales to 11.4 million vehicles, an 11 per cent drop from 2011.

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