UK: Eastern surge to lift European car market
The European car market is set to grow, but growth will be strongest in central and eastern Europe (CEE) and production capacity in western Europe will continue to be threatened with cutbacks as production surges in the east, according to JD Power Automotive Forecasting.
However, JD Power's forecast analysis does foresee some car market growth in western Europe after a prolonged period of subdued demand.
JD Power forecasts that the total west European car market will expand from around 14.7m units in 2007 to 16.8m units by 2014. Projected market growth over the period is reinforced by stronger economic fundamentals and rising replacement demand following a period of 'below trend' sales, according to JD Power analyst Jonathan Poskitt.
Western Europe's car market is forecast to see a small gain (+0.6%) to 14.9m units in 2007. The car market in Germany, Europe's largest national market, is forecast to contract by 2.3% this year to 3.4m units as a VAT increase takes effect.
The picture in CEE is more positive. These markets accounted for a fifth of all European car sales in 2006, but around half of future market growth is forecast to come from the east.
Car sales in CEE are forecast to rise from 3.9m units in 2007 to 5.7m units by 2014. The region's rapid car market growth reflects rising motorisation, a clampdown on used car imports (which have been sizeable in some countries) and an 'exploding' Russian car market.
Speaking at a JD Power Automotive Forecasting conference in London, analyst Carol Thomas said that the Russian economy continues to outperform on the back of a booming energy sector.
The Russian car market is projected to reach just under two million units this year, a gain of 12%. By 2014 the annual Russian car market is forecast to reach 2.6m units.
However, Thomas cautioned that Russia's high-growth market and auto industry carries risks.
"Thus far, Russia's economic resurgence is largely oil-based and a sharp and sustained fall in oil prices could lead to a significant cooling of the economy," she said.
"There is also growing political uncertainty. Will Putin run for a third term? If not his successor is still unconfirmed," Thomas noted.
JD Power analyst Arthur Maher said that west European car production is forecast to decline to under 14m units this year but market growth underpinned a long-term expansion to around 15.5m units by 2014.
But rapidly expanding car production capacity in lower cost CEE locations poses a threat to west European capacity.
"Central and eastern European car production outside Russia is forecast to surge from under 5m units this year to over 7m units by 2014," Maher said.
"But our analysis is based on known plans and assumptions," he added.
"The threat to west European car production capacity is clear. If more capacity than we have projected is subsequently announced for central and eastern Europe, which is a distinct possibility, expect to see further reductions in western European capacity. We are already showing eight plant closures in western Europe over the period 2006-2014.
"And an unexpected recession like the one that hit western Europe in 1993 when the market plunged by 15% could be expected to impact western European carmaking operations in particular."