European Auto Sales Forecasts Consistent Despite Coronavirus Worries, But Expect More Intelligence From VW, BMW This Week

As political action and media coverage of the coronavirus crisis grows more worrisome, it may be some comfort to investors in auto manufacturers that the latest attempts to gauge the impact on car and SUV sales in Europe shows little change from a month ago’s consensus for an up to 5% fall in 2020.

Volkswagen and BMW plan to hold their annual media conferences this week, which might result in more valuable intelligence for investors as both will be expected to outline detailed expectations for 2020. Expect one big difference from these press conferences; both are likely to be held online, rather than the usual set-piece scrimmage with journalists attending from all over the world.

Standard and Poors Global Ratings (S&P) said it cut its sales forecast for Europe this year to down 4% compared with its previous minus 3%. Not much sign of panic there, but S&P did add a cautionary comment.

“Our scenario does not reflect major supply side disruption, which could be an issue over the next months if the negative effects from coronavirus is prolonged or further expanded,” S&P said in a report.

“In these circumstances we see even stronger earnings pressure for already weak performers in 2019, despite a monumental restructuring effort put in place by (manufacturers) and suppliers globally,” it said.

Manufacturers face more blows to profitability, apart from weak sales. They all need to invest huge amounts of capital to modernize away from the internal combustion engine and meet swingeing new EU mandated carbon dioxide emission targets which demand more electric cars in particular and electrification in general.

Last year European car and SUV sales were 15.8 million.

Investment bank Morgan Stanley said in a recent report the situation in China appears to have improved, with limited concern about the supply chain, and questions remaining about demand. As for Europe, Morgan Stanley expects sales to decline 3.6 % in 2020.

China is crucial for German auto companies. According to Professor Ferdinand Dudenhoeffer, director of Germany’s Center for Automotive Research, German auto companies have annual China business worth about $170 billion, close to 35% of annual global sales. China business earns high margins, and roughly 40% of German annual auto profits are in danger.

Norddeutsche Landesbank Girozentrale analyst Frank Schwope said sales on the Chinese market fell by almost 75% in February and he worried that this might extend to other big global markets in March and April. Because of the coronavirus, VW sales will be hit.

“It is no longer possible (for sales) to catch up completely by the end of the year. As a result, we assume VW Group’s sales will fall below 10 million this year, and that this will have a corresponding impact on earnings,” Schwope said.

“VW will only be able to give a very vague outlook for the business year 2020 at the annual press conference on Tuesday,” Schwope said.

“Ultimately, the hope is that the global crisis will peak in the summer at the latest and that catch-up effects will be possible in the second half of the year,” he said.

Last week BMW said 2019 operating profit fell 17% to 7.41 billion euros ($8.3 billion), but it declined to offer any thoughts about 2020. The annual media event Wednesday is expected to provide a forecast.

“The BMW Group’s outlook is likely to be very subdued, as no one can estimate the extent of the crisis,” Schwope said.