European market could fall 32%, consulting firm says

European auto sales could fall by at least 32 percent this year to 14.1 million units from 20.6 million in 2019 because of the coronavirus crisis, the largest decline among major markets, consultants AlixPartners said.

That sales forecast, which AlixPartners describes as its base scenario, is a larger drop than predicted by other major analysts, which are forecasting that European auto sales will fall around 25 percent.

In the case of a prolonged recession, sales could fall by 36 percent to 13.2 million, AlixPartners said in its latest Global Automotive Outlook report.

The report predicts that U.S. sales will decline by 20 percent this year to 13.6 million, and sales in China will drop 9.3 percent to 22.5 million.

Among other analysts, LMC Automotive is expecting western European sales to fall by 26 percent this year. Moody’s says Western Europe sales will fall by 30 percent, while IHS Markit expects sales across Europe to fall by 25 percent. However, analysts have been revising down their European forecasts since pandemic lockdowns started in March.

The pandemic has damaged economies around the world, and global sales are projected to plunge 21 percent this year to 70.5 million from last year's 89.7 million, the report said. From 2020 through 2022, 36 million sales will be lost compared with 2019's run rate, AlixPartners projected.

“It is as if a market the size of all of Europe had vanished for the year 2020," Stefano Aversa, AlixPartners chairman for Europe, the Middle East and Africa, said in an online seminar.

Sales will not recover from the coronavirus pandemic for at least five years, according to AlixPartners. Europe will recover more slowly than U.S. and China in 2020, because it was hit harder by the crisis, but will then post a stronger rebound until 2025.

AlixPartners forecasts that European sales will grow by an average of 7.7 percent annually from 2020 to 2025, with sales reaching 20.4 million units. Sales in Eastern Europe will grow by 15.1 percent annually, driven by Russia, while Southern Europe will see a 10.8 percent increase.

Aversa said Europe was facing a “moment of truth” on emissions regulations, which have been tightened to 95 grams/km of carbon dioxide for 2020-21.

There is “no viable path for most carmakers to close the gap” on emissions, he said, and compliance will become even harder to obtain, as companies plan to cut investments to cope with the effect of Covid-19 on their businesses. Carmakers that do not meet the fleet average could be subject to fines of hundreds of millions or even billions of euros.

AlixPartners cut its estimate on global investments on electrification to $200 billion in the 2020-2024 period, from a previous estimate of $234 billion.

European and U.S. carmakers have taken on significant additional debt to face the pandemic effect. AlixPartners calculated they added $72 billion of new debt and credit lines between mid-March and May 20, a time when most factories and dealerships were closed. 

This extended debt load will last “several years” and force carmakers to cut spending and investing. “Almost all will have to address structural costs,” Aversa said.

He said that could lead to more consolidation in the industry in the next two or three years, “with maybe a couple of deals along the lines of the one between FCA and PSA,” which are seeking to combine to create the fourth-largest automaker by volume. Most deals, though, will be related to specific products or projects, he added.