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Auto sales forecast to drop 22.0 percent, with risk for further deterioration

Impacts to global auto demand in the wake of COVID-19 have rapidly progressed to severity levels higher than the 2008-2009 recession, and significant uncertainty around prospects for a meaningful recovery remain. Global light vehicle sales in 2020 are now forecast to drop to 69.6 million units, 22.0 percent lower than in 2019, with risks to the forecast still skewed to the downside.

“The pandemic remains a clear and present danger to the autos sector, with months of uncertainty expected to cloud hopes for global recovery prospects,”

“The expected cycle of decline, stabilization and recovery for autos varies by market, reflecting variations in containment strategies and policy responsiveness,” said Colin Couchman, executive director, global autos demand forecasting at IHS Markit.

In recent weeks, Mainland China is seeing green shoots of recovery, while much of the rest of the world remains in lockdown. The IHS Markit forecast for Greater China sales in 2020 sees volume at 21.4 million units, a drop of 15 percent from 2019 levels. Though government incentives could help underpin a more orderly recovery profile, these are not yet indicated. Nearly all dealers are back to work and there are signals of an uptick in showroom traffic, but consumer confidence remains fragile. We may see a first-in, first-out phenomenon in China, and auto demand could bottom out midway through 2020 and begin to recover in the second half of the year. In 2021, volume could recover to 23.2 million units, based on current forecasts.

In Europe, COVID-19 lockdowns remain firmly in place for Italy, Spain, France and the UK, though show signs of easing in Germany. Prior to the pandemic, Europe had already faced uncertainty on the CO2 fleet target timetable and UK and European Union trade talks. Europe will see mixed recovery cycles, as a result of local restrictions and varied economic support and stimulus. Planning is further plagued by varied containment restrictions across the region, and recovery strategies are a work in progress. The forecast is for Europe to see sales fall 24.6 percent to 15.5 million units.

North America is forecast to see sales drop 26.7 percent y/y in 2020. In the U.S. a consumer-led recession looks inevitable for 2020 and autos face a bleak demand slump. There is no national consistency on rules relative to sales activity or duration for stay-at-home orders; there remains risk of another increase in infections, which could result in another wave of state or local-level restrictions, changing the dynamic again. IHS Markit expects that the known monetary and fiscal measures are not enough to prevent a collapse in auto sales, and in 2020, the U.S. market sales forecast is 12.5 million units.

Production expected to reflect demand levels

Affected first by stay-at-home orders in effort to contain the virus and then by expected weak demand, global light vehicle production is now expected to drop to 69.3 million units in 2020 – a 19.6-million-unit decline from 2019, according to the latest IHS Markit forecast.

Though production remains essentially shuttered in Europe, North America and South America, China has resumed. For shuttered regions, automakers are developing production re-start plans, factoring in production/capacity implications relative to instituting social distancing, various virus testing options and providing personal protective equipment (PPE). Global automakers can take best practices and lessons learned from re-starting in China to other markets, though are still restricted by local economic restrictions and consumer demand.

The primary driver of the latest outlook for Greater China includes delayed and sluggish resumption of operations in the Hubei province. Output is forecast to drop to 20.9 million units in 2020, compared with 24.7 million in 2019. Further, for many European OEMs in China, the comprehensive spread of the COVID-19 pandemic in Europe may create shortage of key components and bottlenecks in China production. Similar risks for Japanese OEMs in China exist as well, as facilities for semiconductors and other components have been shut down in the ASEAN region in recent weeks. Despite modest improvement in the pace of production in the summer, demand is expected to remain low given the broader global macroeconomic conditions.

In Europe, expectations for declines in production are broad-based, impacting essentially all OEMs in the region as plants have been shuttered to comply with mandated lockdown measures. With regard to restarting production, a mixed picture is emerging with some plants resuming production in late April and others extended to early May – all under a fairly slow, methodical ramp-up scenario. The deterioration in the macroeconomic outlook and the broad COVID-19 containment measures have resulted in material reductions in the demand outlook. Production is forecast to drop to 15.9 million units, compared with 21.1 million in 2019.

In North America, IHS Markit forecasts further deterioration relating to the COVID-19 crisis and its impacts on U.S. auto sales. The 2020 forecast reflects a nine-week shutdown across the region with production for most plants expected to resume beginning the week of May 18. April production is projected at roughly 4,300 units, marking the lowest monthly production level since 1945, following the end of World War II. Production is expected to return at a gradual pace with reduced shifts and continue to ramp-up through the second quarter of 2020. Further, the forecast reflects manufacturers utilizing summer shutdowns to assess inventory and demand, making additional plant adjustments to ensure worker safety and resuming maintenance and retooling efforts where needed. The latest IHS Markit forecast sees North American production dropping to 12.2 million units, from 16.3 million in 2019.

In Japan, lost volume related to the COVID-19 outbreak will reach over 400,000 units by the end of June as the Japanese government announced extended lockdowns in various parts of the country. Full-year 2020 Japan production is now expected to decline by 20.4 percent y/y to 7.3 million units. In South Korea, automakers have been operating normally since the 4th week of February. However, production adjustments are expected in the second and third quarters due to reduced demand, as the COVID-19 outbreak started to intensify in the middle of March. Export demand from Europe and the United States, which accounts for more than 60 percent of total exports from South Korea, has been materially downgraded. As a result, full-year 2020 Korea production is forecast at 3.2 million units, declining by 16.7 percent relative to 2019.

https://ihsmarkit.com/research-analysis