Global Auto Sales Will Slide In 2020, But China Rally Begins.
“40% of German car sales has been generated in recent years in China. Trump’s customs wars have caused considerable damage”
World sales of cars and SUVs will fall again in 2020, but that should mark the end of the decline since 2017. German sales next year will dive 4% and U.S. 3% but China’s mild 1.5% fall to 20.4 million marks the end of its 4-year slide.
That’s according to a report from Germany’s Center for Automotive Research (CAR).
S&P Global Ratings agrees global sales will show no revenue growth in 2020, and expects this to extend into 2021.
This will hurt profitability.
“We expect a combination of factors, including intense industry competition, trade disputes, higher production and R&D costs for electrification, and high restructuring costs, to keep margins under pressure for automakers,” S&P Global Ratings said in a report.
The global economy looks set for an increase in growth beginning early in 2020, led by emerging markets not western ones, according to investment bank Morgan Stanley.
“Trade tensions and monetary policy are easing concurrently for the first time in seven quarters, lifting global growth from the first quarter of 2020 on. The recovery will be driven more by emerging markets as the U.S. is clearly in late-cycle,” Morgan Stanley said.
CAR director Professor Ferdinand Dudenhoeffer said the fall in global sales was due to tariff and customs problems, but that is coming to an end. CAR predicts global sales will fall 5% to 78.8 million in 2019, and bottom out at 78 million in 2020.
“The recovery from the customs wars will take time. Therefore, 2020 will be a transitional year. The good news is that by 2020, the bottom will be reached, and then locomotive China will support the world market, so that the world car industry can turn back on to its growth course,” Dudenhoeffer said.
CAR said China sales, which slid from 24.2 million in 2017 to 20.7 million in 2019, will bottom out at 20.4 million in 2020 and then accelerate up to 25.4 million in 2025. U.S. sales will fall 3% in 2020 to 16.4 million, while Germany’s sales will slide 4% to 3.4 million.
Business as usual
But this recovery doesn’t assume business as usual.
“However, the new growth is characterized by the transformation to the electric car. Shifting the industry to electromobility is causing job losses which cannot be offset by growth processes in the coming years because battery and electric car production is highly automated,” Dudenhoeffer said.
S&P Global said big risks remain, even to its more conservative forecast of a global recovery delayed until 2021.
“An ultimate resolution of the U.S.-China trade dispute is not in sight. Brexit uncertainty remains and the NAFTA-replacing USMCA trade agreement has not been ratified. In Europe there is the CO2 challenge,” S&P Global said.
In 2020 and 2021 new EU emissions rules kick in, and tighten again in 2025, before a final leap in 2030. Some observers reckon this could do serious damage to the bottom lines of the weakest European manufacturers.
Forecasts that China sales will be resuming an uptrend will come as a huge relief to German manufacturers. In recent weeks, Daimler’s Mercedes, BMW and Audi have slashed workforces and trimmed budgets. Daimler and Audi each announced 10,000 job cuts over 2 years. BMW announced cost savings of 12 billion euros ($13.3 billion).
“A good 40% of the German car industry’s turnover has been generated in recent years in China. The customs wars of President Donald Trump have caused considerable damage to the German car industry, even without tariffs on European vehicle imports to the USA,” CAR’s Dudenhoeffer said.