Europe Production Forecasts Slashed As Coronavirus Alarms Consumers

Auto consultants are scrambling to slash their European auto sales and production forecasts for 2020 as the ramifications of the coronavirus become more horrendous for consumers by the day, with sales will fall 10% quickly followed by a negative 20% prediction and this week one prediction of a nearly 60% fall in production trumping all the rest, although this was a worst case scenario.

Inovev of France, in a report published Monday, said if factories are closed by the coronavirus for 4 weeks, output will slip 13% for the year, while an 8 week closure will cut production by 22%. But if sales fall really sharply, say by 45%, production in Europe will dive 57% for the year.

Earlier in the month, forecasters were still clinging to the notion sales might only slip a manageable 5%. Then Professor Ferdinand Dudenhoeffer of the University of St Gallen, Switzerland, said his best case scenario was sales in Western Europe would slide over 10% in 2020 to 12.7 million from 14.3 million the previous year, with the market not recovering to 2019 levels until 2030.

Western Europe includes all the big markets like Germany, Britain, France, Italy and Spain.

Berlin-based ratings agency Scope topped that saying Western Europe’s auto market will shrink around 19% in 2020, contributing to a 9% decline in new car sales worldwide.

On Monday, Standard & Poors Global Ratings said Europe’s Gross Domestic Product (GDP) will decline 0.5% in 2020, and car sales for the continent as a whole could fall up to 20%.

“Given our expectation of increasing social distancing measures and a progressive shutdown of commercial activities throughout Europe in an effort to curb contagion risk, we believe light vehicle sales are likely to decline in the 15%-20% range this year,” S&P said in a report.

“We don’t expect a bounce-back in 2021, but only a limited recovery, which would bring units sold to around 19 million, from 20.7 million in 2019,” S&P said.

Inovev of France said there will be a double hit in Europe, as production is stopped, while demand slides away too. Inovev made these points –

·       Consumers will have less money for inessential goods, and car buyers can often simply extend their ownership of old models.

·       Consumers may worry that even if the coronavirus dies down, it may soon return.

Inovev said the unprecedented nature of the coronavirus, with drastic measures reminiscent of wartime like nationalizations, debt cancellation, and movement restrictions, make it difficult to build realistic forecasts.

Meanwhile investment bank Morgan Stanley tried to look past the immediate impact of the crisis in comments on the U.S. market, but which might well find an echo in Europe.

“Do whatever it takes to get through the next 1 or 2 quarters. Those who can emerge without shareholder dilution or permanent business impairment may enjoy significant opportunities,” Morgan Stanley said.

It praised Ford for its pre-emptive liquidity action and suspension of the dividend, adding other companies are likely to follow this lead.

“Looking beyond the current crisis and its economic aftermath, we see the auto industry as extremely well positioned to benefit from a number of megatrends including accelerated replacement demand – 1 billion cars x $25,000 per unit – related to electrification and cost reduction from the transition out of obsolete, complex and expensive ICE (internal combustion engine) technology,” Morgan Stanley said.

“We also see significant scope for collaboration and consolidation between (manufacturers) over many millions, if not tens of millions, of units of platform commonality over time.”