The automotive industry in Europe will collapse more than 30% in 2020
The sector will record the worst evolution since 1999, according to a study by Euler Hermes. Germany, United Kingdom, France, Spain and Italy, which represent 75% of the European Union car market, the decrease in April reached 84%, compared to the 42% global drop.
Europe’s automobile industry is down more than 30% so far in 2020. Both new car registrations and the business climate plummeted in April. “High-frequency indicators based on Google Trends now point to renewed interest in cars, but, with the exception of Germany, that will not be enough to drive a strong rebound in car purchases before the third quarter,” says a report by the insurer Euler Hermes.
Due to confinement measures across Europe, which caused a massive restriction of public mobility and the closure of both car dealers and showrooms and car registration agencies, European car markets registered unprecedented declines in April: Germany, 61%; France 89%, Spain 97%, the same percentage as in the United Kingdom; and Italy, 98%.
The fall in the automobile market stood at 31% year-on-year for Germany, 43% for the United Kingdom, 48% for France, 49% for Spain and 51% for Italy. For the five main markets, which represent 75% of the European Union, the decrease reached 84% in April, compared to the global drop of 42%, equivalent to -1.6 million new cars.
But the worst figure is the business climate, which sets record lows. Confidence indicators released in late April by Eurostat mark a further deterioration in the current and future business climate for manufacturing and retail. This decline was largely driven by Germany, which represents approximately 45% of European production in terms of value and around 25% in terms of volume. But similar declines are seen in most car-making countries, especially when it comes to orders and production expectations.
The greatest interest does not materialize in purchases
Admittedly, the data points to a renewed household interest in automobiles, but this still does not seem strong enough to materialize in vehicle purchases, except in Germany. The frequency of Internet searches for “car purchases” and “car prices” are seen as a proxy for households’ interest in cars, and in particular their willingness to buy a vehicle in the short term. In general, there is an average gap of three to four months between the upturn in interest in cars on the Internet and the recovery of new vehicle registrations.
Taking as a reference the weekly figures available through Google Trends, until May 10 interest in cars in Germany, the United Kingdom, France, Italy, Spain and Belgium had decreased sharply from February to the first days of April.
April marked the beginning of a trend reversal in most cases, confirmed by the data obtained in the first two weeks of May. It was most evident in Germany, where searches for ‘car buying’ and ‘car prices’ already exceed pre-crisis levels, suggesting that households are preparing to buy new cars in the coming weeks. However, for the other countries in the sample, interest in cars has not yet recovered to pre-crisis levels (France, Italy, the United Kingdom and Belgium) and has not even restarted yet (Spain). Given the average delay, it seems unlikely that new vehicle registrations will recover in France before the end of the summer.
What does this mean for companies? The reopening of showrooms and dealerships across Europe is the first priority for recovering demand, as well as the end of mobility restrictions. Actions aimed at reducing inventory could help, specifically for the first acquisitions, since Covid-19 is a factor that causes fear for people who use public transport these days.
“But Europe is a mature market driven primarily by replacement needs, and car buying is not expected to become a priority for most households, unless they are ‘motivated’ to do so,” the report says. Euler Hermes.
In this sense, the resumption of production will contribute to the recovery, as it will give rise to new models, but it will be gradual and not powerful enough to fully reactivate demand.
In the absence of specific measures dedicated to boosting demand in one way or another, such as tax incentives / subsidies / incentives – particularly in favor of low-emission vehicles – the European market will decrease by approximately 30% in 2020. And It will record its worst performance since the start of these statistics in 1999, with 12 million units sold, registering a decrease of 6 million units from 2019.