Europe’s auto sales spiked in October because of a data anomaly but this couldn’t camouflage the poor outlook for 2020, with most forecasts offering nothing better than stagnation as the industry fights tough new CO2 rules and consumers worry about a recession.
Sales of cars and SUVs in the European Union (EU) advanced 8.7% in October to 1.2 million, compared with the same month last year, according to the European Automobile Manufacturers Association, known by its French acronym ACEA.
For the first 10 months of 2019, sales slipped 0.7% to 13.0 million.
ACEA explained that in October 2018, sales had dived 7.3% because manufacturers had been confused by new EU CO2 emission rules, and weren’t able to produce enough legal vehicles to satisfy demand.
Standout performances in the first 10 months of the year included Fiat Chrysler Automobiles’ (FCA) sporty subsidiary Alfa Romeo, with sales down 39.6% at 43,099. Alfa’s future is in doubt as FCA plans a merger with PSA Groupe. Nissan of Japan, under pressure as profits fall and fighting with an ageing model line-up, saw sales fall 23.4% to 323,529.
Market forecasters expect EU sales in 2020 to be stagnant at best.
“There are a number of headwinds at work for the region, which will make it likely that the market in 2020 will be flat or show a decline,” said GlobalData analyst David Leggett.
“In particular, Germany’s economy is being hit by lower exports of manufactured goods to a slowing Chinese economy whose prospects are still very much clouded by trade tensions with the U.S.. Germany’s new car market this year is forecast by GlobalData to be flat on last year at around 3.4 million,” Leggett said.
Standard & Poors Global Ratings also sees stagnation, and economic concerns in Germany, Europe’s largest market.
“(vehicle sales will be flat) with increasing concerns over economic conditions next year in Germany, which has so far been the only growing auto market. Brexit remains a source of uncertainty in Europe mainly because we don’t spot progress on any trade-related agreement between the EU and the U.K. Given the U.K. market has been shrinking for the past three years, however, we are confident of a stabilization at least, absent a no-deal Brexit,” Standard & Poors Global Ratings said in a report.
“With volume growth out of sight, automakers will depend on refreshing the product mix to defend pricing power and top-line growth. An offensive of hybrid and battery electric vehicles will hit the European market as from 2020, with Volkswagen, and Tesla in the premium segment identified as the competitors to beat,” S&P Global said.
“The EU is heading toward a material tightening of CO2 thresholds in (2020 and) 2021. This raises the question of whether the market will be ready to absorb the number of low-emitting vehicles that (manufacturers) need to deliver in order to comply with their company-specific targets. The combination of increasing regulatory costs and soft market conditions will be tough for Western European markets,” S&P said.
Western Europe includes all the big markets of Germany, Britain, France, Italy and Spain.
Investment researcher Evercore ISI has calculated a 33 billion euro ($37 billion) profit risk to the EU auto industry from these new CO2 rules, and just under half that in compliance costs.
GlobalData’s Leggett forecast sales could fall in 2020, while Britain, awaiting a general election on December 12, is a victim of Brexit uncertainty.
“Brexit uncertainties are weighing on the U.K. car market this year with new car sales down 67% in October, the latest in eight months of decline. Next year is likely to see further uncertainty for the U.K.’s already fragile economic outlook, negatively impacting overall car demand again,” Leggett said.
“Other major European national car markets are also far from strong, with consumer and business sentiment deteriorating in 2019. After several years of bumper new car markets in Europe, underlying demand in 2020 will be weakening and economic headwinds could send the market down – with adverse consequences for carmakers struggling to be profitable in the region,” Leggett said.