AUTOMOTIVE

In 2020, global car sales - and production - are on the road to recording a historical fall after already posting a -4% drop in 2019 following the economic slowdown and the implementation of new regulations in Europe and China.

Confinement measures all across the world due the Covid-19 outbreak, which led to a massive restriction of mobility and the closure of car dealers, showrooms, auto fairs, registration agencies and factories, have pushed automotive markets into unprecedented slumps. According to national statistics, downturns in car registrations exceeded -43% ytd as of May in Europe, -20% in the U.S. and -20% in China, the largest passenger car market, despite a tiny trend reversal in April and May.

In this context, the key question is the pace of recovery in demand. The easing of confinement measures, with the reopening of dealers/showrooms and registration agencies, will mechanically contribute to an improvement. De facto, high frequency indicators on the intensity of searches on the internet for ‘car purchase’ were already pointing to a renewed interest from households in May and June. However, the latter will remain insufficient, in particular in mature markets such as the U.S. and Europe, which are mainly driven by replacement needs, while car purchases might not become a priority for a majority of households, especially with regard to the deterioration of the outlook in terms of employment and wages. A significant revival of demand needs at least temporary boosters. To this regard, three factors are expected to contribute positively: (i) destocking offers, by making more affordable first acquisitions while Covid-19 is to remain a fear factor for people using public transportation; (ii) a faster roll-out of new models compliant with the latest regulatory targets, thanks to the resuming of production and (iii) the multiplication of public measures such as incentives and subsidies, notably in favor of lower emission vehicles. However, we do not expect global sales to avoid a -20% fall in 2020, the market's worst ever performance.

With 73 million units sold globally, down by more than 18 million units from 2019, the loss in turnover and margins is expected to be massive for both carmakers and suppliers (as well as for car dealers and wholesalers). This is forcing them to adjust their portfolios, production capacities and investment plans to preserve their financials while (i) the medium term challenges remain to move mobility forward through investment and innovation in connected cars and autonomous driving and (ii) the Covid-19 outbreak strongly reinforces the need to address the risks related to implementation strategies and supply-chain interconnections that already popped up in 2018-2019 around tariffs.