LMC Automotive is forecasting further quarterly declines in European light vehicle production in 2013 and says that will make the current downturn to output longer, if less severe, than that of 2008/2009.

The picture this year provides considerable cause for concern as there is little sign of relief in prospect for Europe's under pressure volume carmakers who are struggling with overcapacity and falling car markets. If severe price wars are not bad enough, LMC is now detecting rising stock levels and warns that an adjustment may be coming.

"The position for the European industry coming into this downturn was much healthier than that faced in the severe downturn of late 2008 and early 2009," says LMC analyst Arthur Maher. "It was very much leaner, but industry stock build in the current quarter is a very worrying development." 

Following a decline of 5.3% for 2012, European vehicle build is forecast by LMC to contract by 3.7% in 2013 to 18.7m units.

European production is forecast by LMC to contract by 10% (yoy) in the current quarter, representing the fifth quarter of recession (matching the decline of 2008 Q3-2009 Q3). However, Maher warned that this downturn has further to run. “We are still forecasting another two quarters of recession,” he says. “And, if correct, then Europe is currently suffering one of its longest post-war slumps. Recession will probably give way to recovery in 2013 Q4, but there remain anxieties within the sector that the timing of such a recovery could slip.”

LMC's latest analysis suggests that vehicle stocks in Europe are rising, a development that will put further pressure on some OEMs. “Our estimates suggest that these will rise by around 200,000 units in the current quarter, so the true underlying position is more serious than suggested by the European production numbers,” says Maher. “Some OEMs are growing their inventory – a worrying development when set against the background of still falling demand and very low rates of plant capacity utilisation.”

The position across the industry shows strong contrasts in performance at the company level, with premium brands continuing to do well and enjoy high rates of capacity utilisation at the same time as many volume brands continue to struggle. LMC estimates that one third of European light vehicle producing plants are at capacity or close to it. But in stark contrast, around a quarter of Europe's plants are running at approximately 20% capacity utilisation. Maher's rule of thumb is that profitability is reached at around 80% capacity utilisation, so many plants in Europe are operating well below the breakeven level of output.

Maher believes that some OEMs in Europe will need to go further than they already have to take capacity out permanently. “The problem is the duration of this slump in Europe,” he says. “If you are losing money and operating plants at a loss, a big question is how long can you do that if the market recovery is being pushed back further? And if you are losing money and cutting back on new product development to save cost, the competitive implications of that are pretty serious too.”