ACEA

MARKET AND ECONOMY: A rapid downturn in 2008 and 2009 – upswing in 2010?

ACEA data covering 2008 reveal a heavy impact of the financial and economic crisis on Europe’s passenger car and commercial vehicle manufacturers.

Production and demand for vehicles, which had grown in 2007, began to dip in the first half of 2008, at first because of a rise in oil prices, then as a consequence of a more general slowdown. By the beginning of the third quarter, as the credit crunch hit internationally and the European economy slipped into reverse, a steeper decline began. This accelerated in a turbulent final three months.

Overall in 2008, 18.4 million vehicles were produced, down 7% on 2007. Passenger car output fell 7% (25% in the final quarter), while commercial vehicle production fell 5% (33% in the final quarter).

Markets across Europe suffered; demand for cars ended the year down 7.8% while commercial vehicle registrations fell 9%; these were the sharpest drops since 1993.
Prospects for 2009 and 2010 are still unclear, but signs are not positive. More than 1,000 plant stoppage days had been planned for the first quarter of 2009 and pressure on employment is mounting. Overall, 2009 vehicle production may drop by as much as a quarter and commercial vehicle production by at least 50%.

Europe relies on a strong automotive sector. Further financial and economic pressure on the sector will affect the European economy as a whole; 2.2 million people are employed directly in automotive manufacturing; an additional 9.8 million rely on it for their jobs in closely related sectors.

The real multiplier, in terms of employment in the wider economy, is still higher. ACEA members generate a turnover of €551 billion, and total industry exports are worth €77 billion. Around €378 billion in taxes come from vehicles, reinforcing the sector’s reputation as the engine room of Europe.

Vehicle production

In 2008, 18.4 million vehicles were made in Europe, 7% fewer than the 19.7 million produced in 2007. Of the five major vehicle producing countries, Italy reported the worst decline (-20.3%), followed by France (-14.9%), Spain (-12%), the UK (-5.8%) and Germany (-2.8%).

Car production fell 7%, from 17.1 to 15.9 million units. Output in Austria fell most dramatically (-37.3%), followed by Italy (-27.6%) and Finland (-25%). New member states, which account for 18% of EU production fared better; Poland and Hungary reported output increases of 20.9% and 18.9% respectively.

Van and truck production reflected a dramatic decline in the economy in the final quarter. From January to June 2008, light commercial vehicle production had risen 6.5%; by quarter four, it crashed 7% or 138,481 units. Heavy truck production also rose in quarter two by 15%, only to fall 20% from September to December. Bus and coach production reported growth in output last year, rising 7%, however markets showed signs of faltering by December.

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Market demand

In Western Europe, only five countries posted new car growth, Finland (+11.2%), Portugal (+5.7%), Belgium (+2.1%), Luxembourg (+2.0%) and Switzerland (+1.0%). Among the five major markets, Spain reported the steepest fall in demand in its history (-28.1%), while Italy (-13.4%) and the UK (-11.3%) fell by more than 10%. Across Europe, new car demand fell 7.8% to 14.7 million units. In the final quarter it crashed 19.3%.

Consumer choices reflected concerns about the economy. Market penetration of small cars was the highest ever at 38.8%; SUVs penetration which had peaked in 2007 at 9.9.% fell back to 9%, with the most dramatic fall in France from 7.2 to 4.6%. Average engine size fell to 1706cc, from 1740cc a year earlier, while average power output, which had risen steadily since 1990, fell to 86 from 87 KW. More than half of all new cars sold were diesel models (52.7%).

Commercial vehicle registrations were down 9% across Europe, the sharpest downturn since 1993. Truck registrations, down 4% overall, suffered most in new member states (-21.1%). Light commercial vehicle demand (LCVs), up 5.1% in new member states, was dragged down by performance in Western Europe (-12%) to end 10.4% down overall. Bus and coach registrations rose 12.1% over the year, but in December they fell 7.5%.

By March 2009, government fleet renewal schemes had been introduced in 11 countries to boost flagging markets and help sustain the transition to ‘greener’ cars. In Germany, new car sales rose by an encouraging 21.5% in February. Effects were also notable in other markets, such as France, Italy and Slovakia.

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Vehicles in use

According to the latest ANFAC (Spanish automobile association) report, there were 251.5 million vehicles on the roads in the enlarged EU at the end of 2007. Of these, almost 220 million (87%) were cars. That reflected a 0.5% drop on 2006 figures, primarily due to an 11.6% decrease in the German fleet from 46.6 to 41.2 million cars.

The European car fleet is concentrated in five main markets (Germany, Italy, France, UK and Spain) in which diesel penetration is now around 30%. Across the enlarged EU, there is a high proportion of older cars on Europe’s roads. According to ANFAC, 30% of cars are older than 10 years. In some new member states, the average age of a car is up to 14 years, emphasising the importance - economic, environmental and safety – of strong measures to encourage fleet renewal.

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Economic Background

The Eurozone is now officially in recession following two successive quarters of negative growth. The trade deficit is rising and positive employment trends are not reflected in auto manufacturing which has started to report significant job losses.

The overall situation in financial markets remains uncertain, despite massive injections of liquidity from governments and central banks.

Endorsed in November, the Commission’s European Economic Recovery Plan aims to prevent a downward spiral. However, economic forecasts for 2009 have been revised downwards with GDP expected to drop in the Eurozone by 1.9% and in the EU27 by 1.8%. Modest growth of 0.4% and 0.5% is expected in 2010.

Despite interest rate cuts, falling oil prices ($146 a barrel in July 2008 to $44.5 in January 2009) lower commodity prices and inflation which is now 1.1% from a high of 4% in July 2008, business and consumer confidence remains low. Since mid-2007, the Commission’s business and industrial confidence indicators have been falling while its December 2008 consumer confidence indicator was the lowest it had been since reporting began in 1985.

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Forecasts

Production and sales figures from the final quarter of 2008 reveal the scale and speed with which the industry has been affected by the economic downturn. Markets across Europe suffered, forcing a slowdown in production and job losses at vehicle manufacturing plants and across the component supply chain.

Forecasts in this uncertain time are very difficult, albeit both consumer and business confidence is low. Most manufacturers do not expect the situation to improve until 2010. If trends seen in the final quarter of 2008 and into the first few months of 2009 continue, passenger car production could decline by a quarter and commercial vehicle production by at least 50%, reflecting a dramatic drop in orders from business customers.

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