* European car sales rose 8.1 pct in Q1 - ACEA
* Incentives per vehicle up 12 pct in top five markets
* Pricing pressures may dampen recovery plays
(Adds Peugeot, Fiat share gains; analyst comment)
By Laurence Frost
PARIS, April 17 Europe's car sales recovery may
be taking hold, according to registrations data published on
Thursday, but a confidential industry survey shows the pick-up
is failing to halt a price war.
Discounts outgrew first-quarter sales, according to the data
seen by Reuters, casting doubt on the strength of the recovery
and the earnings outlook for carmakers in the region.
Registrations rose 10.4 percent in March, the Association of
European Carmakers said, rounding off an 8.1 percent gain for
the first three months, after six straight years of contraction.
But average retail incentives jumped 12 percent to almost
2,750 euros ($3,800) per vehicle in the five biggest markets,
the findings of a major market researcher show.
"There should be significant concern about artificial
growth," said Ernst & Young senior automotive partner
Peter Fuss, citing discounts, government incentives and
cut-price sales of unused vehicles as 'nearly new'.
The industry's bottom line "continues to be under severe
pressure", he said. Ernst & Young was not involved in the market
PSA Peugeot Citroen saw its European sales volume
rise in line with the market last month and for the first
The French carmaker - which disappointed investors this week
with a recovery plan targeting a 2 percent operating margin for
2018 - is also among the heaviest price-slashers.
Retail discounts topped 3,000 euros per Peugeot vehicle,
according to the survey data, and more than 3,750 per Citroen
across Germany, Britain, France, Italy and Spain, where combined
registrations grew slightly slower than Europe as a whole.
Mass-market carmakers in the region are still struggling to
cover the fixed costs of excess capacity, including unused
production lines and underemployed workers.
And while the market is expected to grow about 3 percent in
2014, forecasters say sales are unlikely to return to pre-crisis
levels for years. Pricing, as a result, may never be the same.
"In the wake of the 2008 financial crisis, consumers are
without a doubt more value-sensitive," said Allan Rushforth,
Hyundai's head of European operations. "For the
moment the incentive levels are at an all-time high."
Peugeot's latest 208 subcompact attracts a discount of 17
percent in France - with an old car traded in - and 20 percent
at German dealers including online car supermarket Auto Eff Eff.
The same outlet offers Volkswagen's recently
revamped Golf compact for about 12 percent off list price in its
1.2-litre Comfortline version.
The VW brand, whose European sales rose 5 percent in March
and 4.3 percent for the quarter, saw the biggest increase in
retail incentives to nearly 2,400 euros per car - up by one
third but still well short of the industry average.
With most at stake in battered southern European markets,
Fiat and Peugeot have led the sector's share-price
rally this year to post respective gains of 45 percent and 39
percent, fuelled by rebound hopes.
But deepening discounts may give pause to investors who had
rushed to play the recovery. Cutting Peugeot to a 'neutral'
rating from 'strong buy' on Monday, Erich Hauser of ISI Group
said its revival plan relied too heavily on pricing gains.
"Purging the sales force and customers of incentives will
take years," the London-based analyst said.
ISI Group nonetheless expects discount levels to stabilize,
after a 5 percent March gain in German used-car prices.
"While used-car prices might not be a perfect yardstick for
new car pricing, we believe it has predictive value," the
brokerage said in a recent note.
No-frills cars powered a 19 percent surge in Renault's
quarterly sales, even as France's No.2 carmaker kept
own-brand incentives in check at about 2,350 euros per vehicle.
General Motors' Opel division and Ford both
slashed more than 3,500 euros off each vehicle on average, while
increasing quarterly deliveries.
Ford's European sales grew 14 percent in March and 12.1
percent for the quarter - more than twice the rate at GM,
hampered by the Chevrolet brand's withdrawal from the region.
Another German online retailer, Neuwagen Experten Nord, is
offering the Ford Fiesta small car for 7,960 euros in its
Ambiente version, or about a third off list price.
Besides recording the sharpest increase in retail discounts,
Europe's largest auto market showed other worrying signs.
According to consulting firm Dataforce, a full 30 percent of
German registrations were demonstration vehicles - registered by
manufacturers to their own dealers and sold as nearly new, often
at a loss.
By comparison, such 'self-registrations' accounted for less
than 9 percent of sales in Britain and 14 percent in France.
"Discounts and self-registrations are anticipated to decline
only gradually as economic fundamentals improve and normal
levels of demand set in," Ernst & Young's Fuss said.
($1 = 0.7243 Euros)
(Additional reporting by Edward Taylor in Frankfurt and Gilles
Guillaume in Paris; editing by Erica Billingham and Tom