• Year-on-year trend for European vehicle production set to turn negative, despite overall improvement in 2010
  • Premium brands set to do relatively well
  • Excess capacity remains a problem at industry level, despite some capacity removal
  • Spectre of 'W-dip' recession provided by European macro financial instabilities 
Premium brands in Europe largely avoided the scrappage rollercoaster and are faring relatively well this year, helped by new models such as the BMW 5 series

Premium brands in Europe largely avoided the scrappage rollercoaster and are faring relatively well this year, helped by new models such as the BMW 5 series

The rebound to European vehicle production that has followed year-ago lows is set to fizzle out with further risks to the outlook presented by European macroeconomic developments and financial instabilities, an analyst at JD Power has told just-auto.

European light vehicle production is forecast by JD Power at 17.5m units in 2010, some 4% above 2009's level. Growth over the year as a whole is being driven by a reversal to the destocking trend that marked 2009's recession-induced low point and also improved export volumes. And the first quarter of this year has continued the positive trend.

However, JD Power Automotive Forecasting analyst Arthur Maher told just-auto that the immediate outlook is for falling production in Europe.
 
Growth of the European market – boosted by scrappage incentives in 2009 – kick-started the industry out of slump. But JD Power warns that the outlook for vehicle production is now being dampened by falling sales as scrappage schemes end.

‘’Although 2010 has started on a strong note, with build up by a third in Q1, European build is forecast to show negative year-on-year changes for the next four to five quarters,’’ says analyst Arthur Maher.

There is neverthless good news for some. JD Power analysis shows that Daimler, BMW and the Renault-Nissan groups are all forecast to see higher build volumes this year.

Better prospects are in store for the premium brands who were largely by-passed by the European scrappage boom last year that was felt mainly in small cars. Their sales last year were therefore 'undistorted' and they are better placed to grow some volume in 2010. Both the Mercedes Benz E-Class and BMW 5 Series will outperform the market in 2010.

And the Renault-Nissan Group is also well-placed with the new Russian scrapping incentive.

Maher says that key determinants of OEM performance include model cycles (new model activity), market geography (currently good if reliant on, say, the Russian market and bad if currently reliant on the falling German market) and segment profile (small car segments A/B currently squeezed).

‘’Premium marques are better placed this year, with small cars exposed in a scrapping incentive payback environment,’’ Maher maintains.

But excess capacity remains a problem for the industry as a whole, despite some recovery to production from year-ago lows. Maher says that European vehicle production capacity utilisation is currently running at 66%, with excess capacity running at over 10m units.

Some capacity has been taken out or slated for cutting, he notes. Opel has now confirmed the closure of its Antwerp plant (annual capacity 242,000). Previously, Tata Motors announced that one of its Midlands plants (Solihull or Castle Bromwich) will be closed by 2014. Volkswagen has trimmed capacity at Forest (A1/Q1) from 242,000 to 150,000 units.

Meanwhile Fiat will close its Termini Imerese plant (93,000-unit capacity) in 2011.

“In the pipeline we expect OEMs to remove individual lines as and when new models are introduced,” he says.

For example, JD Power's analysis shows Ford trimming capacity at Valencia from 425,000 to 330,000 in 2011 when the new Focus goes into production.

Maher cautions that the automotive production recovery from year-ago lows when automakers in Europe frantically destocked amid stalled demand has been a fragile one. There are bright spots for some manufacturers but prospects for the automotive industry will be decided by macro events and the sustainability of a European economic recovery.

The post-scrappage reversal in Europe that was to be expected could yet turn into something more serious.

“Increased financial market instabilities could tip the European economy back into recession – the so-called ‘W-dip recession’ - removing any improvement in European light vehicle build for 2010 and probably 2011,” warns Maher.

Dave Leggett

European Production Forecasts - Exclusive data from JD Power
 200920102011
Pan-Europe 16.790m
-19.9%
17.479m
+4.1%
18.090m
+3.5%
West Europe 12.048m
-17.4%
12.122m
+0.6%
12.321m
+1.7%
East Europe 4.741m
-25.5%
5.357m
+13.0%
5.769m
+7.7%