Strong Growth On Tap for Europe Through 2008

Production in Europe will average annual growth of more than 5% from 2004 to 2008, then begin slowing to mostly small year-to-year upticks through 2011, based on the latest projection by Ward’s AutoForecasts.

An expected slowdown in demand in the region toward the end of the decade, and a loss of export production as manufacturers move assembly sourcing to local markets, will impinge on long-term output.

Growth will be spread out among the traditional heavyweights in the region, especially Fiat SpA, Ford Motor Co., DaimlerChrysler AG and General Motors Corp.

However, as in other parts of the world, production share for many of the historically high-volume producers over the long run will come under fire by the cumulative efforts of several small assemblers and upstarts.

Also, even though Western Europe will remain the region’s manufacturing hub, the fastest growth will be inside Eastern Europe/Commonwealth of Independent States (CIS) – Russia being by far the dominant force in the CIS.

Production in the European region is forecast to increase 5.8% in 2004 from 2003 to 21.5 million units, followed by a 5.1% increase in 2005. Consecutive increases of 3.5%, 6.4% and 5.6% will follow through 2008 before growth begins to soften.

By 2011, when output is forecast at 27.8 million units, annual production in Europe will be some 7.5 million units higher than in 2003.

Light trucks, thanks to a widening demand for SUVs and car-based MPVs, will account for nearly one-third of output by 2011, compared with one-fourth in 2003.

Inside the region, Western Europe will undergo a major rebound after economic recession brought total output down to a dismal 16.93 million units in 2003.

Production could have been worse but for a lift from export growth. But they will be marginal gains compared with the double-digit increases Eastern Europe/CIS will record during the period.

Longer-term increases in Western Europe will be through renewal of existing production facilities. There are by and large no new facilities on the horizon for that part of the world, whereas Eastern Europe is undergoing a construction boom in automotive assembly plants.

Besides new factories, forthcoming increases in Eastern Europe/CIS also are attributable to better utilization of Russia’s capacity, which was nowhere near fully used in the period of 2000 to 2003.

In the long run, some modest production in Kazakhstan and Uzbekistan will begin to develop, adding to what already is produced in Russia, Ukraine and Belarus.

Eastern Europe also will benefit at the expense of Western Europe, as 10 countries from the area joined the European Union this year, and others are expected to follow suit in the next few years.

The leading manufacturing group in Europe, Volkswagen AG, will continue to take some hard knocks. Production gains will occur through 2007, thanks to the post-recession effect, but weakening demand for its products will prevent VW from keeping up with the rest of the industry.

The PSA Group will build on its 1% gain in 2003, which came despite snags in the execution of a Peugeot-Citroen platform-sharing scheme that resulted in some new-product delays. However, by the end of the decade, PSA could be struggling to keep its standing as the No.2 manufacturer in Europe.

On the whole, most of the major manufacturers will struggle to maintain pace. Some will have better near-term gains than the others, but their production in relation to the entire region will remain flat or slightly decline over the long term.

Asian producers, which have made tremendous headway in North America over the last two decades, will begin to make deeper – but still small – dents in European production.

Toyota Motor Corp. and Honda Motor Co. Ltd., the two biggest Japanese auto makers in the region, will see continuous gains through the end of the decade.

However, neither is predicted to break into the elite of European manufacturers in terms of volume.

Toyota is adding capacity and will grow from a 2.2% share of the region’s production to nearly 3% by 2011. Honda, also through added capacity, will see its production share grow from 1% last year to 1.3% in 2011.

At the same time, production by smaller producers – Porsche AG, Magna Steyr Group, AZLK/Moskvitch, OAO GAZ and OAO UAZ are examples – will combine to take a larger slice of the pie away from the high-volume producers. Much of their growth is coming from the outsourcing of niche vehicles from the major manufacturers, or by producing vehicles for their respective local markets, based on platforms developed by the larger OEMs.