New COVID-19 lockdowns threaten 2021 recovery, analysts say

The auto industry suffered through a bleak 2020, with global sales falling an estimated 15 percent, but analysts say any recovery in 2021 depends on many of the same factors that have been in play since the COVID-19 pandemic struck in force last spring: successful vaccination programs and the degree of economic fallout from virus lockdowns.

Morgan Stanley analysts Harald Hendrikse and Victoria Greer said in a note to investors this week that a second wave of lockdowns continuing into 2021 would lead to 300,000 fewer auto sales in western Europe this year. 

Showrooms are closed wholly or in part in Germany and the UK.

“We continue to assume a stronger [2021 fiscal year] recovery in Europe, but lockdowns are challenging that assumption,” the analysts said Wednesday.

As a result, they said, Morgan Stanley was reducing its forecast of 16 percent growth in western Europe to 14 percent for 2021, with growth prospects in eastern Europe significantly weaker, declining from 8 percent to 4 percent.

Global light vehicle sales will be up 8 percent in 2021 to 77.6 million and 4 percent in 2022 to 80.7 million, Hendrikse and Greer said.

IHS Markit is predicting that global sales will increase by 9 percent this year to 83.4 million units, as GDP grows by 4.4 percent after falling 4.5 percent in 2020.

IHS said it "remained cautious" on recovery prospects, with "key markets likely to experience differing demand cycles." That scenario played out in 2020, with China, where the virus first appeared, imposing a strict lockdown and then reopening its economy and minimizing losses; while Europe suffered through waves of infections and multiple lockdowns, with showrooms closed for up to three months or more. 

IHS estimates that global auto sales fell by 15 million in 2020, and in western and central Europe more than 24 percent to 13.7 million units, but will increase by 11 percent to 15.3 million units.

Reasons for optimism include the start of vaccine rollouts and the extension of stimulus programs in several markets, including France. 

Nonetheless, IHS lead forecasting analyst Colin Couchman said in a note last month, “European car consumers are firmly in full 'wait-and-see' mode."

Risk factors include the results of the Brexit trade deal and consumers' receptiveness to pricier electric vehicles, which will continue to roll out this year as the EU ends an exemption for 5 percent of sales and puts in place a smaller "super credit" for zero-emissions vehicles.

Inovev, a French forecaster, also estimates that global sales fell by 15 percent in 2020 to 75.9 million from 89.3 million. It is predicting that global registrations will increase in 2021 to 80.8 million – a 6.5 percent increase -- and continue to rise through 2024 to 89.6 million units.

For Europe, Inovev estimates a 25.3 percent drop in light vehicle sales (passenger cars and light-commercial vehicles) in 2020 to 13.8 million, based on sales through November. That figure was 18.4 million in 2019.

Recovery in Europe will be "slow and gradual," Inovev says, starting with a 9 percent increase in 2021 to 15.1 million -- but not reaching 2019 levels again until 2030.

Another forecaster, Fitch Solutions, says that global auto sales fell by 17.4 percent in 2020, and will increase by just 6.3 percent in 2021 to 81.1 million.

"Geographically, sales recoveries will be dependent on how well a market has dealt with Covid-19 and we will also be considering the distribution of vaccines in 2021," Fitch said, predicting that European sales will increase by about 6 percent in 2021, while Asia will grow by about 8 percent.

LMC Automotive's latest western European forecast, issued Friday, show light vehicle sales increasing by 15 percent in 2021 to 12.45 million, after falling by about 25 percent in 2020. An LMC global forecast issued Thursday predicts 11 percent growth this year to nearly 87 million sales.

Although forecasters have not come to a consensus about 2021 -- and they warn that their predictions are highly dependent upon assumptions rather than historical data and trends -- three larger, pandemic-driven trends emerged in 2020 that will have an impact on how cars are bought and owned in the coming years: Demand for private vehicles over mass transit, online sales and electrification.

Health concerns led people to turn away from mass transit in 2020 in favor of private vehicles, studies by Capgemini, IHS and others found, a situation that helped boost sales of both new and used cars. 

"Despite deep recessionary forces, the COVID-19 pandemic creates the unique possibility of consumers turning to car purchases for protection and mobility," IHS noted. 

Incentives and scrapping programs meant to boost recoveries in countries such as France, Italy and Germany focused almost exclusively on alternative-fuel cars, expanding a market for electrified vehicles that was already being driven by new CO2 regulations.

EV market share in Europe, for example, was around 7 percent near the end of 2020, compared with well below 2 percent in 2019. Incentives in France, for example, that could take off more than 10,000 euros from the cost of a new EV will continue until July 1, 2021. 

That will help offset the initial cost gap between internal-combustion engine vehicles and EVs.

Many first-time EV owners have turned to affordable models over pricier cars such as the Tesla Model 3, with the Renault Zoe staging a comeback in 2020 to become the best-selling EV in Europe, and the newly-launched VW ID3 surging at the end of 2020. Many government incentives do not apply to cars priced at over 50,000 euros, and in some cases, scrapping programs are meant to benefit lower-income families.

In a convergence of trends, Fitch said: "We note that new consumers in the EV market driven by the fear of contagion in using public transport are also showing their preference for small EVs."

With car buyers locked down for months on end and showrooms closed, automakers turned to e-commerce strategies to salvage lost volumes in 2020.

Analysts credited a move toward online sales with reducing the impact of "second wave" lockdowns in November, and automakers and analysts say the pandemic has helped to boost what had been a sluggish rollout of online sales tools -- although Tesla has benefited from the strategy for years.

"For an industry that had traditionally been dependent upon in-person showroom traffic since its inception, online sales and contactless delivery programs have been swiftly rolled out and are helping to offset the impact of restrictions on registrations," IHS Markit said. 

Fitch sees online sales models being further refined in 2021, with some automakers such as Nissan looking to develop an "end to end" process that helps shore up margins by reducing overhead, while others, especially luxury brands, will have a hybrid model that retains physical outlets.

"We believe some automakers and automotive distributors will completely change how they sell their vehicles as a result" of what they learned in 2020, Fitch said.