As the end of the year rapidly approaches, thoughts are turning increasingly to prospects for 2010. There are a few worries circulating. One of the biggest is that the nascent and rather fragile economic recovery recorded in the second half of this year will run out of steam.
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Sure, major economies are moving out of recession, but the economic uplift is off a low base and fiscal stimulus packages are playing a significant role in that. Manufacturers in many industries have started producing again after the destocking plunge to output that took place in the early part of this year.
But what will happen to demand in the short- to medium-term?
Will debt-laden governments want to curb public spending? And if they do, how’s the private sector looking? After the shock to the system provided by the international financial crisis and subsequent sharp recession in many places this year, it’s probably a fair bet that businesses and households will stay pretty cautious for a while yet. There are already some signs that investors’ optimism – the first sign of improving business prospects earlier this year – could be on the wane.
That said, things have at least reached a period of stabilisation when compared with this time last year when the uncertainties were very much greater. Next year is not without its challenges, but we can approach it with a greater sense of certainty than we could approach 2009. Governments have seen how they can support economic activity. Interest rates are likely to remain very low. Inflationary pressures are subdued.
For the auto industry, the scenario is one of slight growth, probably led once again by China but with even the US market picking up off an admittedly low base.
In Europe, things will likely look worse as the distortion provided by scrappage incentives disappears. Germany’s market faces a sharp contraction. But even in Europe, 2010 won’t present the same depth of crisis to the industry that the early part of 2009 did. Light vehicle production in Europe in 2010 is forecast to grow slightly over 2009’s level. It is not a spectacular rate of growth, perhaps, but it is a measure of stability and it is preferable to looking into an abyss without a known floor.
But there is a structural problem for Europe’s vehicle manufacturing industry that won’t go away: overcapacity. Europe has the ability to produce 7m more vehicles annually than it needs. That’s a lot of excess fixed capacity that incurs running costs.
Projected industry volumes next year will not be sufficient to dramatically lift capacity utilisation levels for some plants that already look unsustainable. JD Power says that some major plants in Europe are operating at just 20% of their capacity.
The challenges ahead therefore remain considerable, even if we have reached a kind of stability.
Dave Leggett
EUROPE: Light vehicle production forecast to grow 3% in 2010
