European Auto Analysts Foresee Only Modest Recovery

PARIS – The European automotive market probably will rebound somewhat this year but likely will stay flat for the following three or four years, says Stuart Pearson, an industry analyst for Morgan Stanley based in London.

A 25% tumble in sales from peak levels in 2007 is worse than either the 12% collapse during the oil crisis of the 1970s or the 17% collapse in the early 1990s, says Pearson, speaking at the Automotive News Europe Congress.

The decline resembles the Japanese market’s structural 20-year malaise more so than a cyclical change, he says.

An Ernst & Young analysis of the European market notes nine countries within the eurozone are in recession: Cyprus, Finland, France, Greece, Italy, Netherlands, Portugal, Slovenia and Spain.

Manufacturers’ incentives in European markets in March averaged €2,300 ($2,990), up 13% from year-ago, say the consultants.

Spain and Italy each have lost about 1 million sales since 2007, says Ian Robertson, BMW board of management member for sales and marketing. Although Germany in recent years has maintained its market, it is down this year and will remain so. “Consumer confidence is in decline,” he says.

The U.K. is the only major European market with results ahead of 2012, and “that is surprising because the economic performance is not that strong,” Robertson says, noting fleet sales account for some of the region’s success.

Demographics, ownership trends and the age of the fleet all are working against a European rebound, Pearson says. The number of young people reaching driving age is shrinking, and they are less interested in owning cars than earlier generations.

The percentage of the population owning vehicles has declined since 2004, and “we think that this is something structural,” he says.

The average car in Europe is 8.5 years old, while in the U.S. the average is 11.5 years, indicating that car owners could be keeping their vehicles. “We don’t think an aggressive rejuvenation of the fleet is likely,” Pearson says.

Between staying in touch with friends on Facebook, shopping online, working from home and being put off by higher fuel prices, car owners in many countries are driving less.

Although European sales have declined each month this year, they have held steady at an annual rate of 11 million units, which Morgan Stanley sees as a sign of stability. The firm has raised its outlook for the year from a decline of 6% from like-2012 to the backslide of 4%.

Ernst & Young also sees Europe’s economy bottoming out, with slow recovery in the eurozone expected to begin midyear and a 0.1% growth rate in gross domestic product for the European Union for all of 2013. But GDP expansion will average only 1.4% from 2014-2017, compared with annual growth of 2.3% from 1997-2007.

Pearson says the sick market in Europe won’t hinder a 36% jump in global sales between now and 2020 as auto makers add an expected 30 million units of production. Some 70% of the growth will come from Latin America, China and the rest of Asia.

Since 2007, he says, European investors have favored BMW and Volkswagen among the European auto makers, with their stock prices higher now than then. Shares of Europe’s other auto makers have fallen.

Pearson adds a footnote to his predictions: He says he is paid to be right 51% of the time, so 49% of what he says could be wrong.