Solid European Car Sales Expected After Chip, Virus-Hit 2021, But Profits May Sag

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These are strange times for the automotive industry.

2021 should have been a banner year for car and SUV makers as sales were expected to break away from the rubble of the 2020 lockdown disaster. In fact, a zombie coronavirus refused to die and stifled consumer confidence and sales, while a shortage of semiconductor chips halted production in Western Europe and around the world.

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But a train wreck in construction turned out to be at least favorable to top-end manufacturers. At least in the well-heeled demand, meaning cars were produced that could claim top dollar and the likes of BMW, Mercedes, VW’s Audi and Porsche were able to boost profits, even though they did less. sold cars.

Next year looks to present a more straightforward scenario as the coronavirus runs out of steam and the semiconductor industry’s supply chain returns to normal.

LMC Automotive It now predicts sales in Western Europe will rise 7.1% to 11.25 million next year, ending 2021 down 2.7% to expected 10.50 million. It’s been a tough year for forecasters. LMC had recently expected a healthy 9.6% profit for 2021 in July. And last month it predicted a 7.8% profit for 2022.

Western Europe includes large markets in Germany, the UK, France, Italy and Spain.

In 2019 and before the arrival of the coronavirus, sales in Western Europe stood at 14.29 million.

Fitch Ratings expects demand in Europe to pick up, but will not reach pre-pandemic highs for some time. It said Europe suffered more epidemics than China and the US.

“We believe increased demand will accelerate new vehicle sales in 2022 (in Europe), but sales are expected to be approximately 10% below 2019 levels,” Fitch Ratings said in a report.

Fitch recently reported improved ratings on Stellantis, the multi-brand company formed by the merger of PSA Group and Fiat-Chrysler, Volkswagen, Daimler and Renault. (Daimler is about to split into Trucks and Mercedes).

“This highlights the improvement in the credit profiles of European auto makers, driven by flexible earnings and cash generation during the pandemic and semiconductor shortages. Fitch expects this strength to return to normal in 2022 as pricing and product mix normalize and higher EV (electric vehicle) sales drive down profits,” Fitch Ratings said.

Investment bank UBS expects automakers’ earnings momentum to continue through at least the first half of 2022.

“It is increasingly agreed that the worst is over in terms of chip shortages,” UBS said.

But the old, bad habits of seeking market share at the expense of industry profits are likely to return as production returns to normal. Concerns about winners and losers, as the electric car revolution and autonomous cars gain momentum, will have investors worrying.

“Despite our near-term optimism, we are not a structural bull on this area, as we think the narrative about a structurally high (manufacturers) pricing discipline will collapse as soon as there is no supply in the market. “That could happen as early as summer next year,” UBS analyst Patrick Hummel said in a report.

“During the rapid shift toward electric cars and consequently declining ICE car sales, old bad habits will soon return. We look forward to winning investor attention again in electric and autonomous vehicles and software-enabled businesses.” Concerns about discretionary spending in an environment of high inflation will also come into focus, especially at the bottom of the market,” Hamel said.

LMC Automotive was wary about 2022 after reporting that sales in Western Europe rose to 10.3 million in November, up from 9.0 million the previous month.

“We expect the market to expand in 2022, although sales rates will remain well below pre-pandemic levels as supply issues are hampering production. Furthermore, the coronavirus variant continues to pose a threat to consumer demand, though supply side issues currently remain the main headwind,” the LMC said in a report.

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