Don’t Expect Return To Pre-Crisis Levels This Decade.
Western European car sales will at least bounce of the bottom of the charts in 2014 after falling for six years in a row, although don’t expect a big U.S.-style rebound any time soon.
Fitch Rating expects sales to recover slightly in 2014 by between two and three per cent. But it expects sales, boosted by pent-up demand and a gradual improvement in economic conditions, to stay low, with no return to pre-crisis levels by the end of the decade.
Fitch has come up with another couple of scenarios.
Its “bear” scenario worries that long-term structural challenges facing the automotive sector and compounded by the cyclical downturn and current economic issues including poor GDP growth, high unemployment, weak corporate and consumer confidence point to Western Europe not regaining its early 2008 peak.
The “bull” scenario underlines the fact that analysts and economists under-estimate the magnitude of declines and but also the potential for sharp and rapid rebounds.
“The recovery of the new car market in the U.S. has surprised on the upside, with sales growing by more than 50 per cent since 2009. Nonetheless, the European market is more heterogeneous and a simultaneous rebound in all countries is more unlikely than in the single U.S. market,” Fitch said in a report.
It reckons there is a 15 to 20 per cent chance for the “bear” scenario, and 10 to 20 per cent for the “bull” option.
Macquarie Equities Research predicts a similar modest gain in sales for 2014 from what it calls “depressed” levels of 2013, but doesn’t see this helping to cure many of the ailments inflicting European operatives.
“This means that the massive overcapacity problem in Europe of some 35 per cent will remain unresolved and as such the pricing environment is expected to remain challenging over the foreseeable future,” said Macquarie analyst Jens Schattner.
Fitch also points out that a strong exposure to Europe doesn’t necessarily mean disproportionate revenue and earnings growth if the new car market recovers, with highly diversified companies benefitting more from growth outside Europe.
“However, carmakers such as Peugeot-Citroen, producing primarily in Europe and with the lowest (use) rates should benefit the most from the recovery as its contribution margin per unit will increase more rapidly,” Fitch said.
“More geographically diversified groups including Volkswagen, Daimler and BMW should suffer less from a lack of a quick rebound, but are less sensitive to a sharp, rapid and sustained recovery,” Fitch said.