The automotive market in Western Europe will see a fall in demand of about a million units this year, according to a recent study, and will not return to pre-2007 levels until the end of the decade.
While the global automotive industry is still growing overall, the Western European industry faces the prospect of its second severe market downturn in recent years, according to the AlixPartners Global Automotive Outlook. That would have further dramatic impact on a sector that is already facing huge challenges.
According to the study, Western European sales in 2012 will be about 13.5 million new vehicles - down 3.3 million units compared to pre-financial-crisis 2007. AlixPartners forecasts that industry sales are unlikely to reach 16 million units again before 2020.
Consumer uncertainty, due both to the euro crisis and ongoing high unemployment throughout Europe, is impeding private consumption, which has increased by only 0.3 per cent throughout the EU so far in 2012 and is expected to decrease next year by 0.5 per cent. However, the market decline in autos is not evenly distributed. Belgium, Italy and France have experienced double-digit declines in sales, and have a continued negative outlook, whereas the decline in the United Kingdom, Germany and Spain has been relatively moderate, at 0.8 per cent to 2.4 per cent. Meanwhile, the markets in Russia and Poland are growing, at least somewhat.
The situation is exacerbated by continuing excess production capacities. Whereas in North America the crisis of 2008-2009 resulted in a streamlining of the automotive industry, almost all of Western Europe’s plants have been kept running. Only three car factories have been closed in Western Europe since 2007, while eight Eastern European plants were opened during the same period, notes AlixPartners.
As a result, says the study, 40 per cent of the European plants overall are operating under their financial breakeven points -- equal to a capacity utilisation of around 75 to 80 per cent. Plants with the lowest capacity utilisation are primarily found in France, Italy and Spain, but also in growing markets such as Russia and Turkey. Companies with the best performance are premium manufacturers and new, low-cost entrants, including those from Korea, finds the study.
“Excess capacities not only create low utilised and uncompetitive plants, but also force manufacturers to push their vehicles onto the market with heavy price discounts”, said Stefano Aversa, co-president of AlixPartners and head of the firm’s EMEA operations. “Over the long term, production in Europe has to be adapted to demand”, he commented. “Only then will volume manufacturers manage to be profitable again.”