Automotive forecasts revised down as crisis deepens – GlobalData

The shutdowns and deteriorating demand in the automotive sector have caused GlobalData to revise its North American and European light vehicle (LV) production forecasts for 2020 and beyond. This is a stark illustration of how serious the COVID-19 crisis, which has caused sales to whither and shuttered manufacturing plants, is becoming for the automotive industry, says data and analytics company, GlobalData.

For North America, the GlobalData base LV production forecast now stands at 13.6 million, down 2.9 million from the previous forecast. In Europe, the forecast now stands at 16.7 million, which is down 15.7 per cent from the previous forecast

David Legget, automotive analyst at GlobalData, comments: “The drop in North American vehicle production forecast for 2020 versus last year is approaching 20 per cent. That is a very big adjustment for an industry that relies on volume throughout the supply-chain. Already thin margins will be squeezed further by reduced order volumes and some companies will inevitably struggle with cash-flow to weather what is turning out to be a very sharp demand downturn.”

GlobalData’s base COVID-19 scenario forecasts a fall in global LV sales of 17.2 per cent on 2019 to 74.3 million with declines heavily weighted to Q2 and recovery underway thereafter.

Leggett concludes: “One immediate consequence of the deepening crisis is that vehicle manufacturers and suppliers are looking to build cash reserves and expand credit lines to get them through it. The banks will be busy for a few weeks yet.”

Crisis slowly ramping up in Japan

Following the news that Japan has declared a month-long state of emergency and vehicle manufacturers are suspending production at some plants, Leggett added: “COVID-19 is beginning to have a significant impact on consumer and business activity in Japan. Major automakers in the country have also cut back production to adjust for lower global demand.

“While the domestic market decline so far this year can be seen as moderate, compared with what is happening in North America and Europe (March vehicle sales in Japan were down by just 9 per cent), sharper declines are expected from April onwards as more restrictions are imposed on business and consumer activity in the country.

“In Japan, the COVID-19 infection rate and number of deaths remain very low by international standards. However, the government announcement suggests mounting concern in Tokyo that more draconian measures are needed to contain the public health crisis in the coming weeks.

“While Japanese vehicle manufacturers are relatively well placed to weather the coronavirus storm with considerable cash reserves and a domestic market that has held up so far, the COVID-19 crisis will ramp up for them, too, over the short-term – with less support coming from sales in Japan.

“In that context, it is not surprising to see defensive strategies at work – such as Toyota’s move to secure a new $9 billion credit line with banks.”