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You are here: Home1 / News2 / Company News3 / Automotive outlook worsens

Automotive outlook worsens

Date: 9th April 2020 Author: Tyrepress Editors Comments: 0

Pandemic chokes demand in US, developing countries

The global recession triggered by the COVID-19 pandemic is darkening the automotive sector’s short- and medium-term outlook given the prospect of steep declines in demand in North America and developing countries in 2020 in addition to Europe and China.

Scope Ratings expects global demand to contract by 16 per cent this year, equivalent to a decline of 15 million vehicles compared with 2019. The auto industry’s woes are compounded by the slackening in demand even before the coronavirus outbreak: a weak market in China, western Europe’s supported by consumer and regulatory incentives, and the US cooling after a long cyclical upturn.

“Our credit outlook for the automotive industry remains negative and the expected deceleration of unit sales volumes in 2020 only strengthens this view,” says Werner Stäblein, analyst at Scope.

“In a market which is shrinking for all manufacturers, the impact on individual companies’ credit outlooks is a function of their pre-existing balance-sheet strengths and weaknesses,” says Stäblein. Direct and indirect government support for the industry will play a role in helping companies through this crisis, he says.

“We have updated our forecast for light vehicle sales (cars, SUVs, CUVs, pick-up trucks) for 2020 to incorporate the effects of a further spread of the COVID-19 virus in the US, South America, and South Asia,” Stäblein says.

“We are now looking for a global drop of light vehicle sales of 16 per cent in 2020 against our previous forecast from early March for a baseline 9 per cent decline year-on-year,” he says. “We made the sharpest corrections in our forecasts for the US, Middle East and Africa, South America and the South Asia while the European market – western and central and eastern Europe – are still expected to drop most severely by around 22 per cent in 2020.”

Automakers worldwide will have to cope with the supply-side shock from the closure of plants. BMW, Daimler, FCA, Ford, PSA Group, Renault, Nissan, Toyota, and VW temporarily closed most if not all factories in Europe. Car makers will also need to adapt to the demand-side shock to the industry from lower consumer confidence and economic knock-on effects such as higher unemployment, lower discretionary spending, possibly higher precautionary saving and hesitation on large-ticket purchases such as cars.

Stäblein says the market for light commercial-vehicles also faces a severe slowdown in Europe, the US and other markets: “fragile business confidence, reduced business activities and liquidity preservation by large companies and SMEs will drastically lower the demand for light commercial vehicles.” Fleet sales of passenger cars account for about 17 per cent-18 per cent of unit sales volumes in the US and 14 per cent-15 per cent in Germany. “Typical fleet sales buyers such as car rental companies will drastically scale back the replacement of vehicles in their rental fleets which, on its own, already represents a significant reduction of vehicle demand”

The resumption of normal production will take time according to the availability of capacity in the entire automotive supply-chain, not just in individual factories.

“The pandemic crisis may become better and worse over multiple stages and the COVID-19 disease might be around in some shape for some time leading to risks that supply chains remain vulnerable even if sales volumes pick up,” says Stäblein. “Possible future government incentives for consumers to buy new cars would provide only short-term relief as experience shows they tend to bring forward purchases, not create extra demand”, Stäblein added.

Related news:

  1. Toyota pausing production at European plants
  2. Auto industry will look to China for rebound insights – GlobalData
  3. Continental producing medical hoses in Italy
  4. ‘Drastic decline’ – ETRMA releases members’ Q1 2020 sales figures
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