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Most observers have focused on the stronger than expected German ZEW survey that showed expectations jumping to its best level since mid-2010. Yet what has been largely overlooked is a collapse of auto sales throughout Europe. Sales in January fell 8.7% from a year ago to levels not seen since at least 1990.

The only large country spared within Europe appears to be the UK, which reported an 11.5% increase in sales. Germany, which has the largest auto market and one of the more resilient, saw sales drop 8.6%. Sales in Spain were off 9.6%. French auto sales fell by 15.1%. Italian sales fell 17.6%. Finnish auto sales fell 28%, while the Dutch reported a 31.2% collapse. Greek auto sales were off 34.5%.

In terms of producers, Ford was among the hardest hit with a 25.5% decline in European auto sales. It has idled three plants to bring output more into line with sales. Peugeot and Toyota reported a 16.3% and 16.7% decline in sales respectively. Renault sales fell 5.6% and its alliance partner Nissan saw a 6% decline. General Motors reported a 5.5% decline in European sales. Volkswagen, Europe's largest automaker reported a 5.2% decline in sales.

That said, high-end luxury brands continued to report increased sales. Sales of Mercedes-Benz increased 3.7%, while BMW sales rose 6.6%. Jaguar's Land Rover sales rose 19%.

We also note that contrary to expectations, given the Korean won's 14% appreciation against the yen since the Japanese election was announced on Nov 15, Korea's Kia reported a 7.7% increase in European sales in January and Hyundai reported a 2.2% decline, which is less than the Japanese producers and the market as a whole, which means it picked up market share in the contracting market.

Many observers have suggested that the yen's depreciation will lower the price of Japanese cars and/or boost the price of its competitors. It may, for sure, but it is not as obvious as many suspect. First, note that the price of money adjusts much faster than the price of goods. Second, many costs of imports are generated domestically transportation, storage and marketing. Third, Japanese and other producers are big bulky goods like cars produce locally to meet local demand. This means that currency fluctuations may not be particularly salient factors in determining prices.

Fourth, corporations do not all compete to maintain short-term profit margins. Continental European producers and many Asian producers compete by seeking to maintain market share in the short-run. This may mean accepting smaller profit margins. The reasons for the different strategies may be linked to the access to capital. Continental and Asian producers traditionally rely more on bank capital, which is often more patient compared with the US and UK companies. They traditionally rely more on impatient capital of the bond and stock markets.

In any event, the point is that auto sales in Europe have tanked in absolute terms and relative to the US, where January auto sales, despite the 2% increase in the payroll savings tax (end of a tax holiday) rose 14% over Jan 2012 levels. If companies follow Ford's example, and we see little reason for them not to, more plant closing and industry rationalization will act as another head wind on the regional economy.

Source: European Auto Sales Plummet