UK: Inventory swings and flat demand conspire to weaken European car production in 2005
Continuing weak car demand in western Europe in 2005 is, along with inventory cycles, forecast to result in lower overall car production in the region, according to forecasts presented by JD Power-LMC at a conference in London.
The forecaster said that west European passenger car production in 2004 totalled 14.93 million units and that was forecast to decline to 14.67 million units in 2005.
JD Power analyst Arthur Maher said that the quarter million unit reduction was partly influenced by inventory swings on key models such as the Volkswagen Golf and Ford Focus.
Maher also pointed out that many vehicle manufacturers in Europe, such as PSA Peugeot Citroen, are experiencing a negative production trend this year following a period of new product activity concentrated on major volume lines.
"For 2005 only BMW - underpinned by the 1- and 3-Series - will show any appreciable growth in European build," he said. "PSA will see western European light vehicle build contract by 150,000 units and Fiat, DaimlerChrysler and Volkswagen will each see build contract by around 70,000 units."
European production capacity utilisation also remains very weak according to Maher, with further capacity reductions required. He estimated current excess light vehicle production capacity in Europe at a whopping 5.8 million units.
Maher also said that we are currently in a 'hot phase' in model cycle activity with new car models (models up to a year in production) accounting for some 25% of European build in 2005, something that is also contributing to additional volatility in build levels.
Earlier, the conference heard that the western European car sales picture for 2005 was essentially a flat one, with sales for the full year forecast at 14.7 million units.
JD Power analyst Pete Kelly told the conference that the European consumption picture was weak in the face of low population growth and high savings rates.
The prognosis was little better for 2006 (14.8 million units), but significant recovery was forecast for 2007 with a market of 15.3 million units.
"In 2007, recovery in Germany and Italy kicks in," he said. "After years of downbeat consumption and depressed car sales, Germany could be set to be the 'new Japan' with a solid rebound a real possibility. As the average fleet age in Germany increases, pent-up car demand pressures are building."
The conference also heard that Europe is continuing to see a shift in vehicle production eastwards to the lower cost countries of central and eastern Europe. JD Power analyst Carol Thomas highlighted the opportunities in the east, especially in Russia.
"There are risks associated with Russia, of course," she said, "but many more middle-class Russians can now afford the $9,000-$10,000 price for a foreign brand car rather than the $4,000-$5,000 for a domestic make. And it is foreign marques produced in Russia that are growing strongly right now."
"But there are still major challenges for vehicle producers in Russia. The poor, geographically dispersed supplier base and inferior component quality is one such challenge," Thomas added.
"And the outlook for indigenous domestic producers, under continuing pressure from domestically-produced foreign makes, remains highly uncertain. Planned new models will mean higher prices and that will push them head-to-head on price with the foreign brands," she said.