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Production Outlook: A Tough Quarter, Then a Path to Recovery

Carmakers could surpass year-ago output by September
#asia #europe #americas

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Global production won’t be pretty for the next two months, LMC Automotive says.

But the forecasting firm says output should begin to revive by June, then reach—and surpass—normal levels this autumn.

Of course, the coronavirus pandemic could still throw us an unexpected curve ball or two. But LMC’s analysis sees the beginning of an industrywide comeback only a few months from now.

First Things First

To get there, the industry must slog through a very difficult April. Recovery, cautions LMC Managing Director Peter Kelly, “won’t be like flipping a switch.”

Turquois line shows LMC’s forecast. Black line is last year’s production levels.  (Data: LMC Automotive)

Global car production this month will plummet nearly 60% from the 7.3 million units forecast before the coronavirus broke out in China in January, according to LMC.

Industry output will still be about 24% below year-earlier levels in May. But the gap will steadily narrow after that. LMC calculates that production should match last year’s monthly levels by September and remain at or above that pace through the remainder of 2020.

Regional Cuts

Even so, a year-end rally won’t make up for the hit to production caused by the health crisis.

LMC’s latest forecast predicts that full-year global output in 2020 will fall 13% to 76.9 million light vehicles. At the regional level, the slump looks like this:

        data: LMC Automotive

 

Impact on OEMs

No major carmakers will escape lower output volumes this year. But LMC says the declines will range from 6% for Mazda to 20% for Fiat Chrysler Automobiles. Other heavily hit producers will be PSA and Suzuki (-17% each); and Honda, Ford and the Renault-Nissan-Mitsubishi alliance (-15% each), according to LMC.

Not surprisingly, this year’s production disruption is upsetting the timing of new-model launches, says Jeff Schuster, LMC’s head of global vehicle forecasting. He counts 430 of them, a group of major debuts that represents about 25% of annual global production.

By far the most exposed is the R-N-M alliance, with 75 major introductions on the schedule through the three months of 2021. Other producers that face significant risk are Toyota (56 launches), Hyundai (49) and Volkswagen Group (42).

      Data: LMC Automotive

What About EVs?

The pandemic comes just as carmakers, especially in Europe, were gearing up for a huge push into electric vehicles. Now, those plans are threatened as manufacturers focus on survival and revival, Kelly says.

European car companies have been gearing up EV production to satisfy the region’s tightening carbon dioxide emission standards. But Kelly predicts regulators will ease the timetable to reduce the financial strain on producers.

Besides, he points out, Europe is sure to meet its overall CO2 reduction targets this year, thanks to temporary plant closures and reduced traffic volume caused by stay-at-home orders.

Capacity Utilization

Suspended production is making a mess of plant capacity utilization. Maintaining efficient operations is a chronic challenge for carmakers. Schuster says the coronavirus pandemic amplifies the problem.

LMC estimates that plant utilization for the global auto industry will plunge to 68% this year from 90% in 2019. The firm also expects that efficiency will grow only to 75% next year and 78% in 2022.

That scenario, Schuster says, could prompt some OEMs to trim capacity over the next year or so. On the other hand, the industry began the year with relatively low inventories. That means production could ramp up quickly as consumers return.

Outlook

The industry headed into the pandemic in a far healthier position than it was just before the Great Recession a decade ago, Schuster observes.

He reports that carmakers seem to be moving ahead with pre-launch activities so they can ramp up quickly when conditions permit. “If there’s room for optimism,” he adds, “it’s that demand will return.”

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