MILAN (AP) -- Europe's auto market is in freefall. Once the motor for Europe's economy, the car industry has fallen victim to the region's widening recession and soaring unemployment. Carmakers have suffered 18 straight months of declining sales as people worried that they might soon be out of a job put off making big purchases.
New car sales across Europe slid 10 percent in the first quarter of 2013 to 2.9 million, down from 3.3 million in 2012, the European automakers association ACEA reported from Brussels on Wednesday. Even in Germany, one of Europe's strongest economies, new car sales plunged 13 percent during the first three months of the year.
Across the rest of Europe, the figures were just as disappointing. Most major markets saw double-digit contractions: down 11.5 percent in Spain, 13 percent in Italy, and 14.6 percent in France.
The German fall -- which was felt across the country's domestic industry from Volkswagen (NASDAQOTH:VWAGY) to Mercedes -- took analysts by surprise. The country, after all, was still relatively prosperous.
"How can it be so bad when employment and economic growth remain solid?" said Max Warburton of Bernstein Research.
The answer lies in the demand-sapping problems of Europe's debt crisis. The economy of the 27-country European Union is on the verge of a recession after it contracted 0.5 percent in the last quarter of 2012 while unemployment is at nearly 11 percent. This has drained consumers across the EU of any confidence to make big-ticket purchases like a new car.
Based on ACEA's figures, Ian Fletcher, a London-based auto analyst with IHS, expects European sales to fall 3.3 percent overall this year to 11.8 million units. By comparison, many expect U.S. sales to reach 15.5 million for 2013, while sales in China could top 20 million.
The fortunes of its car industry have a big impact on the rest of Europe because any downturn it suffers is felt across the whole region. According to the ACEA, the auto industry directly employs 2.3 million -- mainly highly skilled -- people and supports about another 10 million jobs among the carmakers' suppliers.
The declining car market in Europe has been weighing on global carmakers' bottom lines. Last year, four of the biggest automakers based in Europe -- Ford (NYSE:F), PSA Peugeot, Fiat (NASDAQOTH:FIATY), and General Motors (NYSE:GM) -- together posted operating losses of 5 billion euros ($7 billion) for the region.
According to the ACEA, in the first three months of 2013 General Motors saw sales drop 13 percent, PSA Peugeot sales were down 15 percent, Ford was down by 20 percent, Toyota (NYSE:TM) 18 percent, and Fiat 9 percent. In the premium market, which had continued to sell well as the mass market slumped, manufacturers were starting to feel the pinch. BMW was down a slight 0.9 percent while Daimler (NASDAQOTH:DDAIF) rose 0.2 percent.
For the time being, orders from around the rest of the world help cover carmakers' European losses -- but that is something executives say cannot last. Ford plans to close three plants and reduce European production by 18 percent over the next two years, while General Motors announced this month it will close a German Opel plant by the end of 2014.
Fiat -- whose profits are mainly due to its Chrysler operations in the U.S. -- has switched investment from producing mass market cars in Italy to expanding its premium brands like Alfa Romeo and Maserati which it can easily export.
Ford has said it doesn't expect to break even in Europe until 2015, while for Fiat that will be in 2015-2016.
Among Europe's major markets, only Britain posted growth in the quarter, up 7.4 percent to 605,000 vehicles, the ACEA says. Fletcher of the IHS said this was due to country-specific reasons including a shortage of used cars and very favorable financing.
Jaguar and Land Rover bucked the trend for a 13 percent increase in sales, while Honda rose 19 percent -- each claiming a market share of a mere 1.4 percent. Also gaining sales and market share were Renault's off-price brand Dacia, with sales up 14.6 percent for a 2.1 percent share, and Hyundai's Kia brand, with sales up 3.5 percent for a 2.7 percent share.
Other pockets of bright news hardly bore up under scrutiny. Sales of private passenger vehicles were up 2.7 percent in Portugal, one of the countries suffering most under the debt crisis. Even so, that was still 32.5 percent lower than the average for that quarter between 2009 and 2012.
With Europe's economy forecast only to show some signs of recovery toward the end of this year -- and possibly not until into 2014 -- any hopes of improving sales for Europe's car industry appear some way off.
"Once again, it is difficult to put a positive spin on the latest passenger car figures," Fletcher said.
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