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European Car Sales Growth Will Slow In 2018

European Car Sales Growth Will Slow In 2018.

But Possible Spinoffs Will Excite Investors.

“near-term prospects for most (manufacturers) and suppliers within our coverage look reasonably solid. We believe The Show Can Go On”

European car sales growth will slow in 2018 while the decline of diesel gathers momentum. Investors will be looking out for radical action like the possible flotation of some Fiat Chrysler Automobiles (FCA) subsidiaries like Jeep or Maserati, while the really hopeful will be betting on Volkswagen and Daimler unlocking value for them with the flotation of the likes of Audi and Porsche, or Mercedes trucks.

New models like the BMW 3 series and Audi A6 sedans, Jaguar E-Pace and Volvo XC40 compact SUVs, and the Ford Focus family car will excite buyers, while the onward march of electric vehicles will probably be more of a relentless stumble.

Most analysts expect a small slowdown in the growth of sales next year, ranging from investment bank Nord LB’s 4% gain to just under 1% from LMC Automotive.

Citi Research said 2018 will a year of sales growth in Europe, no bad thing given this would be the 9th year of positive sales after the financial crash. Worries that Europe will slip into recession seem unfounded.

“We still see some potential for volume growth in Europe in 2018, but the big drivers of volumes will be emerging markets. We are confident the (economic) cycle is not about to roll-over – unemployment is low, global GDP is synchronizing and real incomes are rising – but at the same time we acknowledge growth is slowing,” Citi Research analyst Michael Tyndall said.

Tyndall said autos made gains against other sectors in 2017 as investors became less worried about the huge costs of new technology, and excited about the possibility FCA, Daimler and VW might indulge in unlocking investor value.

Will it be FCA?
“It is interesting that FCA, Daimler and VW are the best performing European (manufacturers) over the last 3 months and they are also the most likely candidates for some level of unlock. The issue for us is timing. FCA might well act in 2018, but we would argue that this is expected, whereas for the other two names we think it is a more a long-date prospect,” Tyndall said.

BMI Research also expects a relatively healthy 2018.

“In the all-important Western Europe sub-region, which accounts for 79% of European vehicle sales, growth will decelerate in 2018 to 3.7% compared with an estimated 4.3% in 2017,” BMI Research said in a report.

Western Europe includes all the major markets like Germany, France, Britain, Spain and Italy.

“However, we believe that the positive mix of benign inflation rates and rising employment in major economies in Western Europe will continue to provide major support to growth in auto sales,” BMI said.

Sales in Britain will decline though, it said.

At the lower end of estimates with 0.8% growth expected for 2018, LMC agrees Britain will be a drag on the market. But fears that Britain’s exist from the European Union will end up in chaos seem to have relented a bit.

Professor Ferdinand Dudenhoeffer from the Center for Automotive Research (CAR) at the University of Duisberg-Essen in Germany said new products will help demand in 2018, although falling diesel sales will be a problem.

CAR lists the likely notable new models in 2018, or order of appearance as the Jaguar E-Pace in January, Volvo XC 40 in March, Peugeot 508 (May), Mercedes A class (May), VW Touareg (July), Audi A6 (July), Ford Focus (September) and BMW 3 Series (October).

The first rivals to the Tesla Model S and Model X appear in 2018, with the long-range all-electric Jaguar I-Pace and Audi e-tron.

Bernstein Research analyst Max Warburton declared himself happy with 2017 and hopeful about 2018.

More profit growth
Car sales grew almost everywhere. Mix improved. Pricing held up. Concerns about credit, residuals and diesel were largely overcome. Almost every company beat forecasts. Tesla tripped up. Post Frankfurt (car show), it became evident that the ‘incumbent’ companies were intent on being competitive in the electrification race. The sector has outperformed in 2017.  Pleasing,” Warburton said in a report.

“We believe near-term prospects for most (manufacturers) and suppliers within our coverage look reasonably solid. We believe The Show Can Go On. 2018 will be another year of earnings growth for this sector,” Warburton said.

One big question mark in Germany for 2018, is the possibility various regional cities might impose bans on diesel vehicles, by-passing the federal government and invoking local courts.

Another one that occurs to me is the possibility that right-on buyers of the Jaguar all electric I-Pace, ordering their vehicle online, might end up with a gasoline E-Pace instead. 


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