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Solid Car Sales Growth Expected After Anaemic 2021, But Profits May Sag.

Solid Car Sales Growth Expected After Anaemic 2021, But Profits May Sag.

“We believe pent-up demand will drive an acceleration of new vehicle sales (in Europe) in 2022 but expect sales to remain about 10% below 2019 levels”

These are weird times for the automotive industry.

2021 should have been a banner year for car and SUV makers as sales were expected to power away from the debris of 2020’s lockdown disaster. In fact, a zombie coronavirus refusing to die and choked off consumer confidence and sales, while a shortage of semiconductor chips stalled production in Western Europe and across the world.

But a train-wreck in the making turned out favourably at least for top-end manufacturers. Unleashed pent up demand, at least among the well-heeled, meant cars that were produced could claim top dollar and the likes of BMW, Mercedes, VW’s Audi and Porsche were able to boost profits even as they sold fewer cars.

Next year looks to present a more straightforward scenario as the coronavirus runs out of steam and the semiconductor industry’s supply chains return to normal.

LMC Automotive now predicts sales in Western Europe next year will advance by 7.1% to 11.25 million after finishing 2021 down 2.7% at an expected 10.50 million. It’s been a tough year for forecasts. LMC had expected a healthy 9.6% gain for 2021 as recently as July. And last month it predicted a 7.8% gain for 2022.

In 2019 and before the coronavirus struck, sales in Western Europe hit 14.29 million.

Fitch Ratings expects demand in Europe as a whole will rise but won’t reach pre-pandemic highs for a while yet. Europe suffered more than China and the U.S. from the pandemic, it said.

“We believe pent-up demand will drive an acceleration of new vehicle sales (in Europe) in 2022 but expect sales to remain about 10% below 2019 levels,” Fitch Ratings said in a report.

Credit profiles
Fitch recently reported improved ratings on Stellantis, the multi-brand company formed by the merger of PSA group and Fiat-Chrysler, Volkswagen, Daimler and Renault. (Daimler is about to split into trucks and Mercedes).

“This highlights the improvement of European auto manufacturers’ credit profiles, driven by resilient earnings and cash generation during the pandemic and semiconductor shortage. Fitch expects this strengthening to moderate in 2022 as pricing and product mix normalize and higher EV (electric vehicle) sales constrain profitability,” Fitch Ratings said.

Investment bank UBS expects auto makers earnings momentum will be maintained at least in the first half of 2022.

“It’s increasingly consensual that the worst in terms of chip shortage is over,” UBS said.

But the industry is likely to revert to old, bad habits of seeking market share at the expense of profits as production returns to normal. Worries about winners and losers as the electric car revolution and autonomous cars gain momentum will worry investors.

“Despite our near-term optimism, we’re not structural bulls on the sector, because we

think the narrative about structurally higher (manufacturers’) pricing discipline will fall apart as soon as the market is no longer undersupplied. This might be the case starting summer next year,” UBS analyst Patrick Hummel said in a report.

“During a rapidly accelerating shift towards electric cars, and shrinking ICE car sales as a

consequence, old bad habits will likely be back soon. We think investor focus will then shift again to who wins in electric and autonomous vehicles and software-enabled businesses. Concerns about discretionary spending in a higher-inflation environment will also come into focus, especially in the low-end part of the market,” Hummel said.

LMC Automotive was wary about 2022, after it reported the selling rate in Western Europe rose to 10.3 million in November from 9.0 million the previous month.

Pre-pandemic levels
“We anticipate market expansion in 2022, though selling rates will remain substantially below pre‐pandemic levels as supply issues continue to hamper production ramp up. In addition, coronavirus variants continue to threaten consumer demand, though supply side issues remain the main headwind currently,” LMC said in a report.


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