Automotive News Europe - April 2020 - 37

AUTOMOTIVE NEWS EUROPE

FINAL WORD

Luca Ciferri

Navigating the
corona crisis
S

everal automakers and suppliers have
scrapped their 2020 financial outlooks
and are holding back any new forecasts
because of uncertainties caused by the
coronavirus outbreak. BMW Group is a notable exception. The German automaker
predicts significant decreases for vehicle
sales and overall revenue, and it expects
its operating margin to fall by 4 percentage
points to a range of 2 percent to 4 percent.
How bad are things in Europe? Well, Mario Draghi, the usually soft-spoken former president of the European Central
Bank, called the crisis "a human tragedy
of potentially biblical proportions."
Global auto sales will plummet 12 percent to 78.8 million, IHS Markit forecasts. This represents a downgrade of
10 million units compared with the firm's
pre-crisis forecast in January. Such a decline would be considerably worse than
the two-year peak-to-trough decrease of
8 percent during the Global Recession in
2008-09, IHS warned.
Light vehicle sales in Western and Central Europe are expected to decline 14
percent to 15.6 million units this year;
U.S. sales will fall 15 percent to 14.4 million, and demand in mainland China will

is Associate Publisher
& Editor at Automotive
News Europe. He
can he reached at
lciferri@autonews.com.

slump by 10 percent to 22.4 million this
year, IHS predicts.
Rather than settling on one set of numbers, consulting firm AlixPartners has formulated three potential scenarios.
1) After two to three months of disruption there will be a quick recovery. As
a result, sales in China will decline between 7 percent and 10 percent; while
Europe and the U.S. will drop 10 percent
to 15 percent. The global sales decline
will be 9 percent to 13 percent. This scenario estimates that vehicle plants will
restart after three to four weeks of lockdown, which looks unlikely under the latest developments.
2) Global vehicle sales decline by 16 percent this year. Plants remain closed for
two to three months. Customers hold back
on car purchases for two to three months.
There is no noticeable recovery in the second half. As a result, car sales in China fall
8 percent to 12 percent and decrease by a
minimum of 20 percent in Europe and the
U.S. Under this scenario, China, Europe
and the U.S. are forced to take action to
boost the economy; the industry faces a
cash crunch, increasing the risk that bailouts will be needed to rescue companies.

3) The third scenario is more in line
with Draghi's fears. A global recession
takes hold in 2020 and 2021 and worldwide vehicle sales drop 22 percent, led
by 25 percent declines in Europe and the
U.S. and a 15 percent decrease for China sales. In this scenario, cash-strapped
consumers postpone car purchases,
causing some automakers and suppliers
to collapse as they did in 2008-09.
With most of Europe still under lockdown, it
is difficult to judge which of the three scenarios is most credible. What we know is
that the automotive industry is much better
prepared this time than it was in 2008-09
(see our cover story, Pages 6-9).
As a result of the hard lessons learned during the Great Recession, automakers and
suppliers have more cash in their coffers.
They have also become a lot better at cash
management. They have achieved both
despite pressure from financial analysts
to decrease what those experts felt were
piles. Automakers refused to distribute
that so-called "excessive" cash to shareholders. Today they look pretty smart,
because if cash was king in the post-2008
era, it is a true emperor in these even more
uncertain times. ANE

Photo: Bloomberg

Virtually all vehicle manufacturing
plants in Europe and the U.S.
have stopped production because
of the coronavirus pandemic.

APRIL 2020

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