LMC Raises 2014 Sales Estimate, But Warns About Economic Fragility.
Europe’s flagging car market may have hit bottom, but the latest economic data still suggest years of profit-less stagnation for troubled mass car manufacturers. The possibility that a rising tide of economic growth might rescue flailing loss-makers seems a distant hope.
Latest statistics from the E.U. show euro-zone gross domestic product grew only 0.1 per cent in the third quarter, down sharply from the second quarter’s 0.3 per cent. The second quarter numbers had been greeted as the first signs troubled Europe could start to recover from the crisis of recession, massive unemployment and euro-zone currency turmoil.
LMC Automotive does have a glass half-full take on the latest sales data though, saying recent sales returns from Western Europe suggest that the bottom has been reached and hint that an upturn may finally be starting to emerge.
“However, given the economic and political fragility in the region, it would be optimistic to expect a sustained period of increasing sales in the near future, though we do expect sales to start to steadily improve from 2014,” LMC Automotive said in a report.
LMC Automotive now expects Western European sales growth of 2.8 per cent in 2014, after a 2.3 per cent decline in 2013. Sales in October rose 3.8 per cent.
VW can see some green shoots too.
“Although uncertainty in Europe continues, the first signs that markets are stabilizing are emerging,” VW sales chief Christian Klingler said in a statement.
Berenberg Bank cut its forecast for 2014 sales growth to 2.0 per cent, down from its previous estimate of 2.5 per cent
Car sales in Western Europe are down by just under 3.5 million a year from the pre-recession high of 14.79 million in 2007. Most experts don’t expect this high to be reached again before 2019 or 2020.
Fitch Ratings also expects the improving market to help manufacturers profits next year, although it doesn’t see a return to pre-2007 crisis sales levels because of weak consumer and corporate confidence and limited economic growth.
Fitch sees some ominous long-term trends too.
“Demand is also being dampened by structural changes – including the rising cost of car ownership, increasing vehicle life-spans, and measures by some cities or countries to deter car ownership. Taken together, these factors suggest that a return to pre-crisis sales volumes could take until the end of the decade, if it can be achieved at all,” Fitch said in a recent report.
What Fitch calls “ongoing, aggressive discounting” is also hurting revenues and earnings. It does manage to raise some enthusiasm for profits of German manufacturers like Volkswagen, BMW and Daimler, helped by higher sales growth in the U.S. and their geographical diversification.
Of the threatened non-Germans, Peugeot is the most vulnerable, according to Fitch, doubting its plan to return to profitability by the end of 2014.
The Financial Times Lex column sees some kind of limbo for Europe’s troubled manufacturers which have managed to hang on through the down turn.
“European carmakers have weathered the bad times without removing much (excess) production capacity. European plants are running at two-thirds potential. And light vehicle sales in western Europe …. are not expected to more than edge up next year,” Lex said.