Ongoing sovereign debt crises across Europe are continuing to have a major impact on the Continent’s automaking development, with 2007 production levels not expected to return until 2017, says analysts, LMC Automotive.
Addressing delegates at yesterday’s (9 May), Automotive Supply Chain Magazine Congress at the home of British motor racing in Silverstone, LMC head of European production, Justin Cox, outlined some of the challenges facing European manufacturers.
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“We are in quite special times right now,”said Cox. “Unemployment to reach 27% in Spain [for example] and the tally of vehicles sales the worst since 1978. Economically, we are in the midst of an austerity-driven downturn.
“Growth is essentially a hangover of sovereign debt crises and this has significant consequences on vehicle development. Europe has become a rather unfriendly place for European carmakers. Consumers are tending to be more sophisticated and that has led to the rise of the premium brand.”
The LMC head of European production stressed Europe-wide high unemployment levels had resulted in “recessionary levels of confidence,” with 30% out of work in Greece and double digit jobless numbers in France and Italy to add to the Spanish Mediterranean gloom.
“Weakness in demand in Europe has really created an awful profile for European producers,” said Cox. “We have had seven quarters of contraction and at LMC, we expect another two.”
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By GlobalDataBut despite the undoubted challenges – “even Germany stutters” – Cox did outline some brighter markets such as China that is still expected to add another 9m units while a resurgent US is likely to increase by 2m vehicles.
“Exports are the only bright spot that reflect key markets such as China and the US,” added Cox.
Overcapacity issues are very much to the fore in Europe at the moment, with a raft of closures announced in France, Belgium, the UK and Germany, although LMC highlighted huge disparities between OEM utilisation with BMW for example, running at more than 80% contrasting with Fiat at just 40%. “BMW will probably need additional capacity to support demand when a recovery happens,” said Cox.
“Faced with this environment, OEMs are responding in a number of ways. Obviously, the most brutal way is planned closures, with Ford Genk and Southampton, Bochum with General Motors and the Aulnay plant at PSA outside Paris, closing.
“That is a politically sensitive thing to do and some manufacturers have taken account of the sensitivity of the situation and have agreed to repatriate production to their domestic markets, namely Renault with the Trafic and Micra van to France.”
The downturn has resulted in an intensification in what Cox referred to as “distress marketing,” with price cuts for some, but also the increasing emergence of alliances such as that between General Motors and PSA.
But although the outlook remains extremely tough, Cox did offer a glimmer of hope for beleaguered automakers, even if it is four years ahead.
“The medium-term outlook for light vehicle production at the trough, is expected to continue to 2014,” he said. “In 2015, optimism improves but we are still not even close to the 2007 peaks…of 22m.
“That does not occur until 2017, so it is a ten-year gap to return to peak production that we saw in 2007.”
