Boston, MA -- (SBWIRE) -- 05/09/2013 -- In January 2013, the Spanish government announced plans to extend the car-buying subsidy programme it introduced in 2011 in a bid to boost sales. However, we maintain our forecast for a 1% decline in sales in 2013, as consumer sentiment remains subdued, and believe this subsidiary programme will have little impact on sales.

In an attempt to boost sales and increase the fuel-efficiency of vehicles on the road, the Spanish government has been running the PIVE plan (Programa de Incentivos para los Vehiculos Eficientes) - a vehicle scrappage scheme. The government provides a rebate of EUR2,000 (US$2,600) to those who trade in their old car (over 12-years-old) for a 'low consumption vehicle'. Cars powered by natural gas, hybrids, plug-in hybrids, and extended-range electric (fully or partially powered by internal combustion engines and electric petrol or diesel) qualify for the scheme. The scheme started on October 16 2011 and was originally intended to run until March 31 2013. The government has stated that it wishes to extend the programme. We are bearish on the likelihood of its success, however, as EVs and other alternatively fuelled vehicles constitute a relatively small proportion of the passenger car market.

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In August 2012 passenger car sales increased 4.4% y-o-y ahead of a VAT increase from 18% to 21% on September 1 2012. We believe this modest increase in sales does not reflect a resurgence in demand; indeed, sales in the remaining months were negatively impacted as consumers brought forward their vehicle purchases to avoid the VAT increase.

In the total passenger car market, sales declined 12.1%, to 710,566 units in 2012. BMI forecasts sales in this segment to decrease 1% in 2013 as rising unemployment, deflation in the housing market, and stringent fiscal cuts continue to impact consumer sentiment. We believe that this represents a bounce-back effect from years of pent-up demand (and delayed purchasing decisions) in the market, rather than a return of consumer confidence. Furthermore, we believe that a continuation in the car-buying subsidy will have a relatively limited effect on total sales.

BMI maintains a fairly bearish short-term outlook for Spanish vehicle production, predicated on weak domestic sales and exports. In 2012, passenger car production in Spain fell by 18.7%, and we forecast a decline of 3% in 2013.

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