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Double Dip For Auto Sales Looks Likely

At Best, 2011 Looks Like A Repeat Of 2010
But Audi, BMW Will Sail On Majestically; VW Too

Volume Manufacturers Face Vicious Price, Incentive War 

A double dip recession in the European car market is becoming increasingly likely according to one investment bank, while industry forecaster J.D.Power thinks this is still possible.

In a report, Citigroup Global Markets reckons that despite problems which will impair most of the automotive sector, BMW and Audi have a golden near term future because of their impressive new model programme, while in the mass market sector Volkswagen is set to accelerate past its rivals in the race for the most modern line-up of new cars.

But the future looks grim for most players in Europe as a double dip looms.

“There appear too many market uncertainties for conviction in continued performance at this stage; a double-dip in auto volumes looks a reasonable assumption,” said Citigroup analyst John Lawson.

J.D.Power analyst Jonathon Poskitt isn’t quite so certain about a double dip, but in a report reiterating a forecast that 2010 sales in Western Europe will fall nearly seven per cent, he said 2011 won’t be much better either, with the possibility that huge discounting might be necessary to underpin sales.

“Underpinning our forecast for the 2011 car market is a backdrop of slow economic recovery. There are risks to such a forecast, both on the upside and the downside. At this stage, we would attribute a low probability to any V-shaped economic recovery in the region (this being a sharp pick-up in the economy moving away from recession). Though on the downside, a double-dip recession certainly cannot be overlooked. If the latter situation transpired, we could be looking at market circa 700,000 units lower than the current base forecast we have for next year, depending on the extent to which car manufacturers would be prepared to take a hit on their bottom lines,” said Poskitt.

Currently, J.D.Power forecasts a 1.4 per cent slide in 2011 sales to 12.56 million.

Citigroup isn’t feeling very optimistic about 2011 either.

“As in 2010, in 2011 we expect Europe to be the most obvious negative in the global auto economy. The volume swing is not in itself overly damaging, but the pricing implications are something to be more wary of. Europe’s volume assemblers are already reporting pricing pressures in domestic markets post (scrapping) incentives, which a prolonged lean period is unlikely to help,” Citigroup’s Lawson said.

BMW and Audi though will be immune.

“We see product cadence being a significant benefit at BMW and Audi in the next few years but a hindrance to the performance of Mercedes. Audi in particular has short-term benefits associated with a rash of products from the A1 through A6, A7 and A8,” Lawson said.

Fiat looks vulnerable in the popular sector.

“In the volume sector, there is a remarkable outlier on the negative side in Fiat, until the re-instatement of some of the delayed product launches of 09/10 finally normalise the company situation in the second half of 2011. Otherwise the story is of VW and Peugeot-Citroen catching up Renault from behind, but VW soaring past rivals in the next two years,” Lawson said.

In the short-term though, the biennial Paris Car Show, which opens to the public on October 2, will “be one of the most debut-rich for some time, with volume relevant products like Ford Focus, VW Passat, Mercedes CLS, Audi A7, Citroen DS4 and C4.”

Neil Winton – September 15, 2010 

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