European Car Production on the Ropes

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Macroeconomics, Supply & Demand

In stark contrast to the US market which has seen fairly consistent automotive production since the end of the cash for clunkers surge, the European market is forecast to fall this year. In a Reuters article, the European Automobile Manufacturers’ Association is reported as saying in an annual report that following a decline in the second half of 2008 and first half of 2009, EU new car registrations picked up in the second half of last year. That partly reflected fleet renewal schemes implemented in 13 EU countries but those stimulus measures have now come to an end. At the time there was considerable criticism that such stimulus measures were poaching new car sales from future years, encouraging buyers who would have changed cars in 12-18 months to change early with the result that in subsequent years there would be a dearth of buyers. That appears to have been the case. If the traditionally quiet July and August periods are taken out, the trend since the middle of last year has been downward as this graph shows:

Source: European Automobile Manufacturers’ Association

Trying to put a positive slant on it, the association said the situation is improving, with passenger car production up 22.8% in the fourth quarter of 2009, compared with a low in the last quarter of 2008. But the reality is compared with the pre-crisis level of the fourth quarter of 2007, car production dropped 7.6% in the last three months of 2009 and the trend is down.  The one bright spot is January has shown a small month over month uptick as this graph shows:

Source: ACEA

With by far the largest car production market, Germany is likely to be hit more than other countries but parts of Eastern Europe have become heavily dependent on car production as manufacturing of smaller cars has been moved East in search of a lower cost base.

Source: ACEA

However helpful the scrappage schemes were last year, they have had the effect of sucking 2010 sales into 2009 and the year ahead is going to be little better than flat. Those 2009 buyers are not going to be back in the market before 2012 or beyond.

–Stuart Burns

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