Europe’s car market is getting even worse

European car sales declined for a seventh straight month, though the drop was overshadowed by a rebounding economy in China, the world’s largest market.

Automotive shares rose after China beat expectations for first-quarter growth. Volkswagen AG, which sells about 40 percent of its vehicles there, led gains with a 1.6 percent rise with similar rise in the Stoxx Europe 600 Automobiles & Parts Index.

VW Chief Executive Officer Herbert Diess and Nissan Motor Co.’s China head Makoto Uchida, both speaking at the Shanghai Auto Show this week, said they expect the Chinese market to pick up in the second half of the year. Automobile sales in China shrank last year for the first time in more than 20 years.

An uptick in China would offer positive momentum in a global car market pullback, with Europe so far showing little sign of recovering since September, when new emissions tests caused turmoil. Italy, where the economy is already shrinking, may weaken further while contracting car sales in Spain are in line with forecasts for a slowdown for an economy that’s been resilient so far. Germany, the continent’s biggest market, barely skirted a recession at the end of last year, and prospects for recovery remain dim.

Europe Drops

Registrations in Europe dropped 3.6 percent in March to 1.77 million cars, the European Automobile Manufacturers Association said Wednesday. Italy led the declines among major markets with a drop of almost 10 percent, followed by Spain.

"An improvement in new car registrations isn’t on the horizon in light of the bleaker economic environment, the endless Brexit debate and political risks,” EY consultancy said in a report.

For the quarter through March, sales fell 3.2 percent in the European Union and European Free Trade Association countries, the ACEA said.

A softer market adds to headwinds for carmakers battling sliding profits that prompted BMW AG to intensify measures designed to save 12 billion euros ($14 billion) by 2022. Rival luxury-car maker Daimler AG is also looking for cost reductions. Pressures are set to intensify in the EU next year with tighter regulation on carbon dioxide emissions, while uptake of electric vehicles remains at a fraction of total deliveries.

The industry may face EU penalties of 30 billion euros with Volkswagen AG still working on reducing a deficit on CO2 goals, VW’s Diess said Tuesday.