Four wheels good for confident consumers as Europe picks up speed

Just after Colm Quinn opened his first BMW dealership in 2008 in Athlone, a town on the river Shannon in central Ireland, "the world crashed". As eurozone consumers finally open their wallets after years of austerity the signs for Mr Quinn's second outlet, opened earlier this year after an investment "in excess of €3m", are more promising.

Figures published on Wednesday showed that the eurozone economy expanded by 0.4 per cent in the first quarter of 2015, as the fall in energy prices helped revive consumer confidence. Nowhere is the revival more evident, arguably, than in sales of new cars, which have rebounded strongly across much of the eurozone.

Sales of new cars in Ireland reached nearly 66,000 in the first four months of this year. That is more than for the full year of 2009, when the industry was ravaged by the global credit squeeze and Ireland's financial collapse. "There was a period when you couldn't be seen to be driving a new car, even if you could afford it," Mr Quinn says, such was the backlash by hard-hit working families against years of austerity, recession and pay cuts. But with the Irish economy rebounding quickly, "it has become acceptable to have a new car again".

The relatively confident picture in Ireland is repeated across much of the eurozone, where consumer confidence is rising again after years of hardship and recession. It reached a record high in April in Spain, exceeding levels seen during the pre-crisis boom. Household spending is also rising fast. The government's official forecast is for a 3.3 per cent increase in private consumption this year, following a 2.4 per rise in 2014. Italian household expenditure rose 0.1 per cent in the fourth quarter of last year. Domestic demand grew strongly in Germany, providing most of the lift to economic growth even though export sales disappointed.

Yet it is sales of new cars that stand out. Between January and April, overall car sales in Spain rose 24 per cent compared with the same period last year. Italian car sales in April were up 24 per cent. Nor is it just mass-market brands that are flying out of the showrooms; there is also a surge in sales of luxury brands. Spanish Porsche dealers, for example, sold 43 per cent more cars in the first four months than in the previous year. Mercedes saw sales rise 38 per cent.

Economists say this rebound in economic activity reflects factors that are at play across the eurozone: unemployment is falling, disposable incomes are on the rise, and there is significant pent-up demand. Tax cuts, the low oil price and ultra-low interest rates have also helped lift consumption.

Erik Nielsen, global chief economist at Unicredit, says: "The eurozone's economy has been so weak for so long that we're likely to see a lot of pent-up demand released in the coming quarters. Car sales are the best evidence of that. They indicate that confidence is growing and that people are taking advantage of low borrowing costs."

Industry experts say the rise in car sales should not be exaggerated. Cyril Molloy, who owns four Ford dealerships spread across suburban Dublin, says the surge comes from a very low base. Government incentives are helping the rebound. So is the arrival, at least in Ireland, of "personal contract purchases" - a manufacturer-led financing incentive programme widely used in the UK that makes it worthwhile to purchase a new rather than a used car, and to keep doing so.

Moreover, Irish car sales are still a long way from the nearly 250,000 sold in 2000, when the fabled Celtic Tiger economy was booming. The Society of the Irish Motor Industry is forecasting that sales for this year should reach 123,000, and perhaps touch 145,000 next year if the Irish economy - the fastest-growing in the eurozone - continues to recover from years of stagnation. "What we're seeing at the moment is replenishment investment - but consumers are definitely back in the showrooms," Mr Molloy says.

Nevertheless, buying a new car is an undoubted sign of renewed confidence among consumers. After a home, it is probably the biggest expenditure a family will make. Alan McQuaid, an economist at Merrion Stockbrokers in Dublin, says: "They are the most obvious sign that people have confidence in the recovery."

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