But Worst Case Scenarios Reined In A Bit; Maybe A Squall, Not A Storm
Double-Dip Recession Feared As Consumer Confidence Weakens
The impact from scrapping incentives is about to run out just as European governments start to slash spending to cut budget deficits; fasten your safety belts as the roller-coaster edges towards the scary, plunging sector of the ride.
The pace of the downhill section is not likely to be as bad as initially feared though. Renault, in a statement accompanying its impressive half-year sales report (see below) said the European car market would fall between seven and nine per cent this year, compared with a previous forecast of a 10 per cent dip.
“In Europe, the market is expected to continue the fall that began in April with the end of the scrappage bonuses and the reinforcement of austerity plans in several countries,” Renault said in a statement.
Deutsche Bank also reined in its earlier negative forecast for Western Europe, but not by much. Deutsche Bank analyst Gaetan Toulemonde added 300,000 sales to his forecast for 2010, taking it to 12.6 million, or a fall of eight per cent. Toulemonde said the industry is battening down the hatches, but implying a squall rather than a storm.
“Companies are today prepared for a slowdown: inventories are low, temporary workforce significant, with restructuring measures ready to be implemented. Our estimates already factor a much tougher second half European market since our (second half) operating profit estimates are on average already 50 per cent below the first half,” Toulemonde said.
Automotive consultancy J.D.Power retains its prediction for the year at minus 5.7 per cent for Western Europe, although it said massive discounting makes forecasting difficult.
“The underlying downshift in demand for vehicles remains, in our view, largely unavoidable. Discounting has been employed, liberally in some cases, on order to mitigate the impact of incentive withdrawal. This has been especially true in Germany but is taking place more generally in a number of countries. This approach to the current market environment represents an upside risk to our forecast for Western Europe,” J.D.Power analyst Pete Kelly said in a report.
Pan-European action to curb government over-spending will undermine consumer confidence.
“The emerging consensus among Europe’s economic policy makers is for a swift and sustained attack on national fiscal deficits. This can only be bad for vehicle demand as it is likely to entail public sector job losses, or wage freezes and cuts, cancellation of government-funded private sector contracts, with tax increase coming alongside. Consumer confidence, which held up relatively well during the earlier phases of the Greek crisis, is now on a downward trajectory once more with negative implications for car sales,” Kelly said.
As manufacturers prepare for the roller-coaster to plunge, they will take comfort from the fact that on normal fun-fair rides the bottom is in sight, and the upturn not far away.
Kelly is not sure when this will happen though, worrying that the impact from fiscal tightening will extend way into 2011. A double-dip recession might stall any recovery.
“The risks of a widespread fiscal consolidation are serious, increasing the probability of a double-dip recession in some countries. We do not expect to see the car market in 2011 exceed our current 2010 projection,” Kelly said.
Neil Winton – July 15, 2010