German, Italian Turmoil May Undermine Auto Prospects.
Berenberg Bank Now Sees A Fall Of 2% For Europe.
Healthy European car sales forecasts for 2018 are coming under pressure, and the expectation of modest growth less than a month ago is being replaced by fears German and Italian political developments might undercut consumer confidence.
On March 4, Germany’s Social Democratic Party (SDP) will announce the results of a ballot to approve its participation in a new Grand Coalition with Chancellor Angela Merkel’s Christian Democrats. A negative vote might mean another general election.
On the same day Italy holds a general election. Former Prime Minister Silvio Berlusconi’s centre-right bloc had a clear lead Friday in latest opinion polling but is unlikely to win an absolute majority pointing to possible political deadlock, according to Reuters. A third of voters remain undecided, the polls suggest.
And a court case in Germany on February 22 could spell the death knell for diesel engines if it decides local authorities can ban them from city centres on health grounds. This would knock a huge hole in the profits of major European manufacturers relying on diesels to achieve big gains in fuel economy and CO2, set by the E.U.
The atmosphere has soured quickly. At the turn of the year forecasts for Europe ranged from plus 4% to close to plus 1%, but now some pessimists are turning negative with one bank seeing a 2% per fall.
Retaining its positive view for now, LMC Automotive still sees Western Europe sales gaining 1.6%. The European Automobile Manufacturer’s Association, known by its French acronym ACEA, now expects 1% growth for Europe as a whole, with worries about Brexit underlining the fragility of the recovery. ACEA also pleaded with the E.U to dilute its harsh CO2 rules.
80 per cent of sales
Western Europe, which includes Germany, Britain, France, Spain and Italy, accounts for just under 80% of European sales.
Nothing concrete has changed for the European economy, but the possibility of political turmoil can’t help, while the stock market crash followed by a hair-raising recovery and roller-coaster ride, won’t have induced much confidence either.
Berenberg Bank of Hamburg is currently the most negative, now seeing a fall of 2% for Europe as a whole, and said a crucial and often unnoticed element in the support of recent market health is crumbling – the used car market.
Berenberg analyst Alexander Haissl said apart from low interest rates, highly favourable supply and demand dynamics in the used car market have been the key driver in new car sales since 2014.
“Warning signs in the form of weakening domestic used car volumes in Germany, France and Italy, as well as a meaningful deterioration in key export markets like Poland, have already started to crystallize over the last few months. Used car inventories in Germany are on the rise, which underpins the beginning of a market imbalance, in our view,” Haissl said.
LMC Automotive still, retains its positive forecast for Western Europe.
“Overall, we are still forecasting a slowdown of growth in 2018 as a whole. Notwithstanding exceptionally strong results in some markets in January, there is still limited scope for growth in Germany, and a relatively weak U.K. market will constrain regional growth to around 1.6%,” LMC analyst Jonathon Poskitt said.
IHS Markit now predicts just 1.1% growth in the E.U. to 15.34 million vehicles.
Cause for concern
Citi Research, in a report published earlier in February, still see 2.8% growth in Europe, but points to rapidly weakening diesel sales as a cause for concern.
ACEA forecast car sales growth will slow to 1% in the European Union in 2018 after 2017’s 3.4% gain.
At the same Carlos Tavares, ACEA President and PSA Group CEO, warned about the impact of overly heavy and prescriptive CO2 regulation.
“The European automobile industry is on a pathway to recovery, finally coming close to pre-crisis sales and production figures after a full decade. But in light of major E.U. legislation ahead of us, notably new CO2 targets for cars and vans as well as the threat of Brexit, this recovery is fragile. We must therefore maximize efforts to safeguard our industry’s competitiveness,” Tavares said.
Tavares said legislators should set targets, but not try and force the industry to embrace battery electric vehicles. The decline of diesel posed a threat to E.U. targets for 2021. Tavares wanted more time for the industry to adapt to the CO2 rules.
“ACEA is therefore calling for an ambitious yet realistic approach to future CO2 reductions. This should include a well-balanced plan for a gradual shift to low and zero emissions vehicles, limiting the direct impact on the competitiveness of the European automotive industry,” Tavares said.