Warning sign with text CLOSED COVID-19 on a empty parking lot of an airport or train station. … [+]
As short-term auto sales almost disappear in Europe and the U.S., investors have been hoping a short-lived crash in demand would be followed by a quick and vigorous “V” shaped recovery, but forecasters worry this recovery scenario might be flattened by a second wave of coronavirus infections.
Fitch Solutions Country Risk & Industry Research said in a report published Wednesday a second wave of infections could stall the hoped for quick recovery and push it out to 2021 from the hoped-for second half of 2020. That would mean global demand, now expected by Fitch Solutions to fall 9.9% to 83.45 million, would decline by up to 25% in 2020 and weaken further in the first half of 2021, with a rebound in the global automotive sector pushed to the 2nd half of 2021. This forecast expects global sales to fall a further 10% in 2021.
“A second wave of the Covid-19 outbreak could stall the recovery in the global automotive sector as re-implementation or the extension of safety measures, such as movement restrictions and business operating restrictions, will see demand for new vehicles falling further,” Fitch Solutions said, without offering any evidence for the likelihood of a second wave of infections, which it describes as a scenario.
“Vehicle sales would not see an immediate recovery in the aftermath of the second wave of Covid-19 as vehicle demand would be hit by fears over a resurgence of the virus and the uncertainty over countries’ economic growth prospects,” Fitch Solutions said.
Fitch Solutions said while not its core view, a second wave of infections would feed on already weakened markets.
“According to one of the downside scenarios identified by our Country Risk team, a second wave of the Covid-19 outbreak could exacerbate the global recession and push the economic recovery towards the second half of 2021, compared to 4th quarter 2020 under their core view. Under this scenario, the second wave of outbreaks would occur in the absence of a medical breakthrough, which would force many economies to implement another round of sustained lockdowns, not only dragging out the economic disruption for even longer but also resulting in a significant period of uncertainty with regard to the success of containment measures,” Fitch Solutions said.
Fitch didn’t offer a breakdown forecast for Europe or the U.S. under this scenario.
Only a month ago, forecasters were hoping that auto sales in Europe might slip only about 5%, but as the virus impact accelerated forecasters have been slashing numbers, and now a 20% fall for Europe is a rough consensus. But most forecasts assumed there would be a strong “V” shaped recovery. For instance LMC Automotive expects car and SUV sales in Western Europe to fall 18.3%, although it was braced for a worsening in demand.
Forecaster IHS Markit is much less pessimistic. It has said Western and Central European sales will slide 13.6% in 2020 to 15.6 million, but recover by 4.2% in 2021, 4.3% in 2022 and 1.4% in 2023.
German’s Scope Ratings, in a report also published Wednesday, said global demand will fall 16% this year as demand dives in the U.S., China and Europe. Scope only expected a 9% fall in early March. Scope expects demand in western and central Europe to fall 22% in 2020.
GlobalData analyst Calum MacRae is clinging on to hopes for a “V” shaped European recovery, but worries about a “U” shaped one.
“In terms of the rest of the year our central assumption remains for a V-shaped recovery – i.e. a sharp contraction followed by a rapid recovery as pent-up demand is fulfilled in the 3rd and 4th quarters. However, that assumes that government programs to limit collateral economic damage from the lockdowns are successful – if not the prognosis moves more to a U-shape recovery,” MacRae said.
French consultancy Inovev has said car buyers after the crisis may feel replacing cars may not be high on their list of priorities. Others may fear the coronavirus might well return to turn economies and work life upside down. It also fears the initial damage caused by the coronavirus shutdown might prompt a return to trade protectionism, nationalization and general government interference.