European Car Sales Growth Likely To Stall In 2019.
“Fitch Ratings expects what it called the stable outlook for the European auto sector to come under pressure in 2019 as sales weaken”
Auto sales in Western Europe will come under pressure in 2019 as economic growth starts to wobble, and the market recovers from the debacle of new fuel economy rules which threw a monkey wrench into buyers’ plans last summer.
Just as sales were returning to normal, the “gilets jaunes” (yellow vest) riots in France persuaded buyers to stay at home. Sales in France dived 15% in December.
Carmakers are worried about the possibility of a tariff war with the U.S., as President Trump seeks to right the imbalance which allows European cars to sell in the U.S. with a 2.5% tariff, while U.S. made ones carry a 10% premium.
Most experts expect sales to rise a bit next year in Western Europe.
As well as the expected economic stutter, buyers are being forced out of their fuel frugal little diesel city cars and into gasoline powered vehicles. This is giving the carmakers a big problem because their average fleet fuel consumption is now moving up, not down.
If this trend continues, by 2021, new European Union rules will force them to pay huge fines. If only people would buy battery electric vehicles or hybrids. But they are too expensive. Even smaller electric cars like the Nissan Leaf start at $33,000 in Britain, after tax.
Europeans have long been let down by manufacturers making false claims about vehicle fuel efficiency. New rules – Worldwide Harmonized Light Vehicle Test Procedure or WLTP – starting in September were meant to sort this out. In August sales spurted almost 30% as manufacturers brought forward vehicles which would fail the new test. Sales dived more than 20% in September reflecting manufacturers’ inability to make enough cars and SUVs to meet the new regime.
By now sales should have returned to normal. Then the “yellow vests” struck, as disaffected French voters protested about the price of diesel. It costs Europeans almost 3 times as much to fill their cars and SUVs than Americans.
In 2019, Moody’s Investors Service expects Western European car sales to rise a barely perceptible 1% to 16.5 million, although that is marginally better than 2018’s 0.7% gain. Moody’s said if a tariff war does break out with the U.S., Tata owned and British based Jaguar Land Rover (JLR) is the most vulnerable. 20% of JLR’s sales are in the U.S. Volvo is next in line with 14% of sales there. BMW, Mercedes and Volkswagen Audi are major U.S. importers too, but represent only 12%, 8%, and 3% of total sales, according to Moody’s.
Fitch Ratings expects what it called the stable outlook for the European auto sector to come under pressure in 2019 as sales weaken.
Standard & Poors expects European GDP growth of just below 2% in 2019 and global auto sales to increase by between 1 and 2%.
LMC Automotive said it was concerning that the recovery from the WLTP debacle appears to be slowing, but also sees very small sales growth in 2019.
“Following a slower than expected end to 2018, we see 2019 Western European (car sales) growth at a little over 1%. There remains scope for improvement in a number of markets, including Spain and Italy, though economic headwinds are likely to curtail the latter country’s stalling car market recovery,” LMC analyst Jonathon Poskitt said.
Western Europe includes all the big markets like Germany, Britain, France, Italy and Spain.
Bernstein Research analyst Max Warburton isn’t looking forward to 2019.
“The Auto sector has been at the center of almost every economic and political concern. Tariffs, China, de-globalization, emerging markets, global warming, alternatives, Brexit. You name it, we’ve got it. Whatever the worry, you can normally be sure it affects the auto industry. After a strong start to the year almost every stock in the sector went backwards in 2018 – some quite dramatically,” Warburton said.
“We head into 2019 with the sector on its knees, with ongoing fears about China, European demand and EV (electric vehicle) and (fuel efficiency) compliance costs. It’s not going to be easy – but maybe, just maybe, some of these clouds might clear? Could China stimulate? Will European demand prove robust? Can mix continue to improve? We’ll soon see,” Bernstein said.