By William Boston
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 8, 2020).
BERLIN -- The global auto market is splitting three ways,
complicating efforts by the industry's main players to recover from
their deepest crisis in years.
While sales in post-lockdown China are showing signs of
recovery, they are continuing to fall in the U.S., according to
company and industry data released in recent weeks. The data also
show that Europe is becoming the world's weakest-performing auto
market.
This lopsided recovery is putting extra stress on an industry
that was already struggling with softening demand and soaring
technology costs before the coronavirus pandemic hit. Shares of
General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles
N.V. are each down roughly 30% in 2020, and their combined market
value now represents just a third of Tesla Inc.
While persistently weak demand, particularly in Europe, is
pushing some manufacturers to join forces, the recovery in China is
helping those car makers with substantial business there, such as
Tesla, shares of which have tripled this year.
"Those manufacturers relatively more exposed to China will be in
a better position -- or not as bad a position -- than those where
their footprint is skewed away from China," said Jonathon Poskitt,
an analyst at forecasting group LMC Automotive.
Fresh sales data from German luxury-car maker BMW AG on Tuesday
illustrate the industry's new world map. In China, BMW sold 212,617
cars in the second quarter, up 17% from a year earlier. In the same
period, sales fell 40% in the U.S. and 46% in Europe.
Mr. Poskitt said LMC expects China's new-car market to decline
11% to 22.8 million vehicles this year, compared with the U.S.
falling 22% to 13.3 million and Europe declining 24% to 15.7
million.
This is a different picture from just a year ago. Back then,
global manufacturers with large China businesses such as Volkswagen
AG and General Motors were struggling with a slowdown in demand in
this market at the same time they faced rising investment costs
linked to the transition to electric vehicles.
Now, after being hit first by the pandemic and the associated
slump, China is also first to emerge on the other side. By April,
China was nearly back to pre-Covid-19 sales levels and posted
year-over-year growth of 6% in May. The China Association of
Automobile Manufacturers said last week on its WeChat page that
preliminary figures showed June new-car sales had risen 6.3% to
2.28 million vehicles.
In the U.S., auto makers reported sharp drops in second-quarter
sales, despite discounts and cheap financing. General Motors posted
a 34% drop in sales in the period, but said demand had begun to
pick up in May and June. Toyota Motor Corp.'s sales in the U.S.
fell by about one-third, and Fiat Chrysler reported a 39% decline
in U.S. sales.
Altogether, Ward's Auto, an automotive-research group, has
forecast that roughly 1.1 million light vehicles were sold in the
U.S. last month, a decline of 27% from a year earlier.
In Europe, new-car sales were down 57% in May, an improvement on
the 78% drop in April, when major markets such as the U.K., Spain
and Italy barely sold any new cars. Still, May's weak performance,
which was worse than the U.S., suggests to some observers that
Europe will be the last to emerge from the crisis even though it
began reopening its economy before the U.S. did.
The European Automobile Manufacturers' Association recently
slashed its forecast for 2020, saying European new-car sales would
fall 25% to fewer than 10 million vehicles. Analysts have said it
could take Europe several years to get back to pre-Covid-19 volumes
of new-car sales. This slowdown in sales means any manufacturer
dependent on profit from Europe could have a harder time recovering
as rivals with strong businesses in China or the U.S. pull
ahead.
Economists expect Europe to get a boost from government efforts
to spur sales, including incentive programs in Germany, France and
other countries as well as Berlin's decision to lower value-added
taxes for the next six months. But that might not be enough, given
Europe's aging population, widespread car ownership and historic
reluctance to make big-ticket purchases in uncertain times.
"Factories and dealers reopened," said Stefano Aversa, vice
chairman of Alix Partners. "But the consumer isn't buying."
With analysts estimating that the industry now has at least 30%
overcapacity, it might be hard for companies to generate the
profits needed to repay the more than $1 trillion in debt they
amassed to stave off insolvency early in the pandemic.
Calum MacRae, an automotive analyst at research firm GlobalData,
said recent sales data suggest that April was likely the trough in
new-car sales, but the deeper damage to auto makers isn't yet
visible.
"The coming months will reveal the extent of economic scarring,"
Mr. MacRae said.
With unsold cars piling up on lots, Volkswagen said last week
that it was scrapping plans to build a new factory in Turkey. And
Mercedes-Benz, owned by Daimler AG, said it was putting its Hambach
factory, in France's Lorraine region, up for sale.
Analysts see smaller or financially weaker companies -- some of
which were struggling even before the pandemic -- as particularly
vulnerable, unless they can find stronger partners.
"All of the smaller companies, but even a giant like VW, realize
they have to gain size because they do not have critical mass,"
said Elmar Kades, senior Alix Partner executive and head of the
firm's Germany automotive consultancy. "Wherever you don't have
critical mass you'll have consolidation."
In January 2019, Volkswagen and Ford said they were in talks to
form a global alliance to develop self-driving-car software and
share some utility-vehicle and electric-car technology. They closed
the $2.6 billion deal last month.
Under the agreement, Ford will license Volkswagen's electric-car
technology. Using Ford's truck systems, the companies will jointly
produce eight million utility vehicles.
Fiat Chrysler and PSA Group SA also stepped up efforts to seal
their merger. Fiat Chrysler Chairman John Elkann, scion of the
Agnelli family that controls Fiat, told shareholders last week that
he was pressing ahead to complete the deal on schedule.
"The Covid-19 crisis has further underlined the compelling logic
of this merger," he said.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
July 08, 2020 02:47 ET (06:47 GMT)
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