European automotive recovery a distant prospect

Author: Morgan Condon


LONDON (ICIS)--While there is some discussion of a V- or U-shaped recovery for some sectors of the global economy in the latter part of 2020, this remains far off on the horizon for the automotive industry.

The sector is in worse shape than many others in the wake of the pandemic, and slower production levels, higher unemployment and weaker demand are propelling each other in a vicious circle and acting as a drag on the market.

Output levels have continued to track down and show no signs of stopping. The most recent data from the European Automobile Association (ACEA) shows that total registration of new vehicles in May dropped 44.4% from the previous year.

Although the rate of decline had slowed from April, the industry body expects sales to drop by 25% over the whole year.

Conditions were much worse than expected at the beginning of the year, although prospects for 2020 were not optimistic to begin with.

Despite the change in dynamics, China continues to drive the automotive sector and the industry will hinge on sentiment in the Chinese market.

With a recent increase in cases of coronavirus recorded in Beijing, this could cap a return to form for the market.

To contend with this slowdown and to ensure the health and safety of employees, original equipment manufacturers (OEMs) have slowed production, leaving workers in the sector at risk of redundancy.

Already Renault has cut 15,000 jobs, and more producers could follow suit if conditions do not improve.

While French President Emmanuel Macron issued an €8bn recovery fund for France’s automotive industry, pressure could mount for other countries to follow suit later in the year.

Despite the tough economic environment, there are green shoots for certain aspects of the industry.

As more consumers are reticent to commit to high-cost purchases, they are more likely to invest in the upkeep of any cars they already own.

This is bad for OEMs, but it could provide some support for the industry if there is sustained demand for vehicle repairs.

If infection rates start increasing again, then governments will impose travel restrictions to contain the spread of the virus, which could limit vehicle wear and tear and flatten growth in the sector.

There is increased pressure from both consumers and regulators for more sustainable solutions in many aspects of manufacturing, including the automotive industry.

A priority of Macron’s bailout package is to make France a centre of electric vehicle (EV) production.

Demand has remained resilient with waiting lists for EVs sustained even in the height of lockdown.

Increased demand for light-weighting to increase fuel efficiency will sustain composites, plastics, rubbers and coatings markets, although at levels below what were previously considered comfortable.

This year the industry has been forced to pump the brakes. Despite a myriad of factors on the periphery waiting to shape consumer trends and the legislative agenda, a recovery will be dependent on the coronavirus being contained.

Front page picture: Workers at a Volkswagen plant in Portugal after lockdown
ource: Xinhua/Shutterstock

Focus article by Morgan Condon