PARIS, April 17 — Recovery in Europe’s car sales may be taking hold, according to data on registrations published today, 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 per cent in March, the Association of European Carmakers said, rounding off an 8.1 per cent gain for the first three months, after six straight years of contraction.

But average retail incentives jumped 12 per cent to almost €2,750 (RM12,320) 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 research.

Sales volume of PSA Peugeot Citroen in Europe rose in line with the market last month, and for the first quarter overall.

The French carmaker — which disappointed investors this week with a recovery plan targeting a 2 per cent operating margin for 2018 — is also among the heaviest price-slashers.

Retail discounts topped €3,000 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 per cent 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 per cent in France — with an old car traded in — and 20 per cent at German dealers including online car supermarket Auto Eff Eff.

The same outlet offers Volkswagen’s recently revamped Golf compact for about 12 per cent off list price in its 1.2-litre Comfortline version.

The VW brand, whose European sales rose 5 per cent in March and 4.3 per cent for the quarter, saw the biggest increase in retail incentives to nearly €2,400 per car — up by one-third but still well short of the industry average.

Fiat and Peugeot, with most at stake in battered southern European markets, have led the sector’s share-price rally this year to post respective gains of 45 per cent and 39 per cent, 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 on Monday from “strong buy”, 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 stabilise, after a 5 per cent gain in March 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 per cent surge in Renault’s quarterly sales, even as France’s No.2 carmaker kept own-brand incentives in check at about €2,350 per vehicle.

General Motors’ Opel division and Ford both slashed more than €3,500 off each vehicle on average, while increasing quarterly deliveries.

Ford’s European sales grew 14 per cent in March and 12.1 per cent 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 n 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 per cent 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 per cent of sales in Britain and 14 per cent 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. — Reuters