European car sales posted their worst June in decades due to supply issues. Sales registrations fell 17% across the region; VW reports 20% cut

Automakers have registered the lowest number of new vehicles in the European Union since 1996 as the industry continues to experience supply chain disruptions and is now hit by record inflation.

New car sales in the EU and four other countries monitored by the European Automobile Manufacturers Association fell 17% last month to 1.07 million, according to the statement. Large automaker Volkswagen AG has been hardest hit, with registrations down 24% year-over-year.

European car sales fell 17% in June and have been declining for 12 consecutive months. Source: European Automobile Manufacturers Association.

While manufacturers including VW, BMW AG and Mercedes Benz AG said last month that semiconductor shortages have begun to ease, it will take time for any increase in production to reach showroom floors and allow dealers to shrink order books. Manufacturers are also dealing with rising raw material and energy costs, which are pushing up car prices.

Sales in major markets including Germany and the UK could return to growth this month thanks to a year-over-year comparison, according to Bloomberg Intelligence. While this suggests that the industry has a chance to break the 12-month streak of consecutive downturns, it will be difficult to make up for losses in production in the first half of the year. LMC Automotive estimates that light vehicle shipments to Western Europe will fall 6.3% this year to 9.92 million. In January, a market researcher predicted that sales would rise nearly 9%.

Sales count. How major automakers behaved in Europe last month and since the beginning of the year. Source: European Automobile Manufacturers Association.

Demand forecasting remains difficult due to the risk of worsening energy shortages. This week, the main Russian gas pipeline to Europe was closed for maintenance, and Berlin and its allies are preparing for President Vladimir Putin to permanently cut off gas flows in response to sanctions and support for Ukraine.

“Rising concerns are about potential plant shutdowns in Germany due to energy shortages,” Tom Narayan, European auto analyst at RBC Capital Markets, wrote in a July 5 report. “The concern is more related to the supply chain (chemical plants in Germany stop producing plastics used for automotive components, etc.) and therefore cannot affect German OEMs any more than others.”

Automakers made up for the volume loss with higher prices and a focus on their most expensive and profitable models. But as inflation rises and consumer spending shrinks, this strategy may run into limits.

„We’re a bit wary about the outlook for next year,” VW CEO Herbert Diess said in an interview with Bloomberg Television last week. “The world will remain unstable. This is our guess, so we have to be a little careful.”