New CO2 rules cloud 2020 European sales outlook

"Uncertainty" was the watchword for European sales going into 2019, and that will again be the case in 2020, executives and analysts say.

Last year, caution centered on Brexit, tariffs and the lingering effects of the Worldwide harmonized Light vehicle Testing Procedure (WLTP).

None of those factors have completely disappeared, but the big unknown is how buyers will react to a wave of electrified vehicles needed to meet new EU emissions rules.

"I think that 2020 will be a very interesting year, because we will see if the consumers are ready to buy [electric vehicles], if the infrastructure that's needed is in place, if the different use cases are working," Faurecia CEO Patrick Koller said. "We will see."

Peugeot CEO Jean-Philippe Imparato warned of turbulence at the end of 2019 and the beginning of 2020, as automakers go from average fleet CO2 emissions of about 120 gram per kilometer at the start of 2019 to 95g/km, the new EU standard, on Jan. 1. To count as a 2019 sale, cars had to have been registered before that date.

Overall sales will be "stable" in 2020, Imparato told Automotive News Europe, but he expects there to be a "seasonal effect" on first-quarter demand because of the tougher emissions regulations.

"I'm not sure all the automakers are ready for them," he said of the new targets, which will apply to 95 percent of all vehicles sold in 2020 and 100 percent of those sold next year. "If you are not ready now in terms of product, production and stock management, you will be dead in January."

A four-year post-recession run of sales growth slowed to a halt in 2018, with the European market slipping into negative territory, down by 0.04 percent, and the Western European market down by 0.7 percent. Final figures for 2019 were not available at press time, but the overall market is expected to be flat.

For next year, analysts are predicting that European sales will fall somewhat. LMC Automotive is forecasting a decline of 1 percent in Western Europe in 2020.

Jonathon Poskitt of LMC said in a note: "We are now a little more cautious on 2020, with overall volumes expected to be lower than this year. Economic challenges remain, particularly in light of the external trade environment and Brexit uncertainty." He said that there is a risk that automakers may have to take action that could have an effect on total market volumes because of forthcoming CO2 targets.

Moody's is more bearish, predicting that Western European sales will drop by 3 percent in 2020, revising downward an earlier forecast. Factors in the slowdown include uncertainty around Brexit, and a weakening macroeconomic environment, especially in Italy and Spain. However, Moody's noted that the European market has been at a high level of sales for several years, and that a slowdown in 2020 would return the market to 2017 volumes.

Separately, IHS Markit is forecasting a 2 percent decline in EU plus EFTA sales (Iceland, Norway and Switzerland). "We are seeing a slight decline," said IHS Markit analyst Martin Benecke, noting that formerly strong growth markets in Central and Eastern Europe are now more closely tracking Western European countries.

"On the economic side, the ongoing Brexit uncertainty is holding back investment, not only in the UK but in other nations," he said. On trade issues involving China and the U.S, "It's not clear what's going to happen," he added.

Emissions question

But emissions compliance remains the main question around sales this year, Benecke said, for a number of reasons. Model portfolios will change as higher-polluting cars with older technology are pulled in favor of full-electric cars, plug-in and regular hybrids, and mild hybrids. This in turn will increase prices overall, possibly affecting demand, he said.

Automakers could also push diesel sales, even though the future of the powertrain has been in doubt because of fallout from the Volkswagen Group cheating scandal. After several years of sharp declines, tied to a loss of consumer confidence, increasing cost of emissions compliance and the effects of current and future diesel bans, sales have stabilized somewhat.

Benecke said IHS forecasts that the diesel market share in 2020 will be 31 percent, just one percentage point below 2019's figure. Nevertheless, the powerplant's long-term future is in doubt, he said, because it is increasingly difficult to find further gains in CO2 emissions.

Another unknown is how automakers will ensure that enough low-emissions vehicles are sold to meet fleet emissions targets. Benecke noted that manufacturers have many levers to pull because relatively few cars are sold to private buyers. Those tools include self-registrations, favorable lease terms for employees, and sales to short-term (car-sharing) and traditional rental fleets. Said Benecke: "They have a lot of power to bring these vehicles to market."