Virus uncertainties cloud auto forecasts

Forecasts for the European and global auto market continue to be revised downward because of growing uncertainty about the pace of recovery after coronavirus restrictions are eased. Factors that could temper optimism include a loss in consumer confidence, fear of a second wave of infections and a lack of urgency to buy new cars, especially if substantial incentives are not put in place.

“Impacts to global auto demand in the wake of COVID-19 have rapidly progressed to severity levels higher than the 2008-09 recession, and significant uncertainty around prospects for a meaningful recovery remain,” analysts IHS Markit said in a report at the end of April.

LMC Automotive lead analyst Jonathan Poskitt said Thursday that the company has gamed out three paths to recovery: A V-shaped curve, with a quick rebound, that would lead to 75 million global sales; a U-shaped curve, with a slower rebound, and 60 million global sales; and an L-shaped curve, with sales depressed well into 2021 and just 57 million sales in 2020. 

The greatest likelihood at this time, he said, is that sales will fall to about 70 million units.

IHS is forecasting a similar decline, with global light vehicle sales at 69.6 million this year, a 22 percent decline from 2019 “with risks still skewed to the downside.” Earlier in April, IHS had forecast a 20 percent decline.

Citing deep post-coronavirus uncertainties, France-based Inovev is predicting a deeper drop in European registrations, saying that light vehicle sales could fall by 41 percent this year to 10.3 million units from 17.4 million in 2019. 

Another analyst company, Fitch Solutions, is forecasting just a 10 percent drop in global sales, and an 11 percent decline in production, this year.

LMC expects Western European sales to fall by 27 percent, “a reflection of the magnitude of the coronavirus disruption to the auto sector specifically, and the economy more broadly.” 

Sales in the region fell by 80 percent in April, which LMC expects to be the low point as lockdowns ease. That outlook is clouded by risks from high unemployment and government debt as well as a surge in new COVID-19 cases as restrictions ease. Government support such as scrapping incentives could cushion the blow, LMC said.

IHS is predicting that sales across Europe could fall by 25 percent this year to 15.5 million units, adding that the market was already under pressure from new CO2 targets and trade disputes. Uncertainties remain high with most of Europe’s biggest economies remaining under some form of lockdown as of this week, IHS said: “Planning is further plagued by varied containment restrictions across the region, and recovery strategies are a work in progress.”

IHS said it was seeing “green shoots of recovery” in China, where auto sales ticked up by 0.2 percent in April compared with the same month in 2019 -- the first monthly increase since 2018. For the year, IHS is forecasting a drop of 15 percent to 21.4 million units.

“Consumer confidence remains fragile,” IHS said. “We may see a first-in, first-out phenomenon in China, and auto demand could bottom out midway through 2020 and begin to recover in the second half of the year.”   

U.S. sales could see the largest regional collapse, with a forecast decline of 27 percent this year to 12.5 million units. “A consumer-led recession looks inevitable for 2020 and autos face a bleak demand slump,” IHS said, citing the risks of a second wave of infections and a patchwork of rules on sales activity and stay-at-home restrictions. “The known monetary and fiscal measures are not enough to prevent a collapse in auto sales,” IHS said.

Both IHS and LMC are forecasting that global light-vehicle production will be about 70 million units this year, or about 20 million units lower than in 2019. The steepest drops will be in Europe, Asia-Pacific excluding China, and North America, where factory closings have been widespread and much longer -- typically six weeks to two months or even more -- compared with China, with extended shutdowns limited to factories in Hubei province.​​​​​​

IHS expects that European production will be down 25 percent to 15.9 million units from 21.1 million in 2019, and 25 percent in North America to 12.2 million units, from 16.3 million in 2019.

LMC is slightly more optimistic, with expectations that European production will fall by 24 percent and North America by 21 percent. However, production levels in Europe will not return to pre-coronavirus levels until 2023 or 2024. 

“April was a ghost month in Europe,” LMC production analyst Justin Cox said Thursday.

LMC said that of the expected global decline of 19.4 million units, 5.5 million will be in Europe, or 28 percent of the total; 4.8 million in the Asia-Pacific region -- mostly in India -- or 25 percent of the total; 3.8 million in North America, or 20 percent. Production in China is expected to fall 16 percent for the year, representing a loss of 3.1 million vehicles.