The news on Greece’s debt crisis (which is also Europe’s currency crisis with potential economic spillover) appears positive this morning. Lengthy – and at times fraught – negotiations over the weekend have finished with a result. An agreement between Greece’s creditors and its leaders appears to have been struck for another mammoth bailout in return for measures such as structural reforms to the Greek economy. The markets have reacted positively to the news (on the surface) that makes a Greek exit from the euro currency – with all the uncertainties that entails – less likely.
As I have said before, this European crisis is being watched closely by Europe’s auto industry because it threatens the weak car market recovery that is in place (but with sales still running well below the previous peak). Business conditions across the region remain extremely challenging. With interest rates on the floor and national governments either unwilling (Germany) or unable (virtually everyone else) to give a fiscal boost, a return to conditions of economic recession in Europe would be very grim news indeed for car manufacturers struggling to be profitable.
So, all’s now well, the iron has been pulled from the fire and we’re out of the woods, then? Not exactly. This saga has had plenty of twists and turns and there could be more. Greece has to take the latest agreement to its national parliament this week and it’s going to be a pretty tricky one for Greek PM Tsipras to sell. He will say it’s the best way forward for Greece, but it will certainly be difficult for Greeks to accept it after the recent referendum result and previous promises from Mr Tsipras that he has had to go back on. There is a fair chance it will be rejected (and that’s just hurdle one; the German parliament also votes on the deal later this week).
If that happens, Greece’s debt position and the implications for the eurozone unravel, yet again, and the likely outcomes become less favourable for Europe’s economy. The rest of this year and 2016 would start to shape up as weak for car sales, full recovery in Europe put even further back. Bad news for a number of OEMs. However, if Europe-based OEMs can shift plenty of volume in the relatively buoyant US market, there is a very favourable dollar exchange rate (both euro-dollar and sterling-dollar) that is likely to remain that way for some time to come. So, there is some upside to Europe’s turbulence and its underperforming economy, but that’s cold comfort.
Western Europe’s car market peaked at 14.8m units in 2007. The downturn that began in the autumn of 2008 with the banking crisis took the market down to 11.55m units in 2013. It’s been a long haul to get the market back up to a projected 12.8m units this year – still 2m units under the last peak. Many markets have a long way to go to be ‘back to normal’.
On its latest forecasts, the EU Commission expects real GDP in the EU this year to rise by 1.8% (just 1.5% in the euro area). For 2016, the Commission forecasts growth of 2.1 % in the EU and of 1.9 % in the euro area. If these modest levels are not achieved, unemployment will remain worryingly high in some countries (the unemployment rate is around 25% in Spain; car market growth there is off a low base and being achieved with a scrappage incentive).
What Europe badly needs is much faster economic growth – which is proving elusive. When this immediate crisis is finally over, that needs to be high up on the agenda for Europe’s leaders.
Where did market volume go? A comparison of the last peak with 2014 sales (new car markets in selected European countries)
2007 and 2014 (ranked by scale of market fall in units)
Data source: ACEA
LMC Automotive data for first half Western European new car sales is below:
|Sales (units)||Selling rate (units/year)|
|Jun 2015||Jun 2014||Percent change||Year-to-date 2015||Year-to-date 2014||Percent change||Jun 2015||Year-to-date 2015||Year 2014||Percent change|
Austria, Denmark, Greece, Luxembourg and Switzerland: estimates for latest month
The percent change in the final column compares the average selling rate in the year-to-date with the last full year.