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Europe Sales and Production Commentary- February 2023

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Europe sales
January 2023: +3.6%; 1.160 million units vs. 1.120 million

  • The latest European forecast has brought a glimmer of
    positivity. However, the comparison with pre-pandemic volumes
    highlights how far registrations have dropped. The growth rate
    during the month is compared with January 2022, when the full
    extent of the semiconductor supply issues started to emerge.
    European light vehicle registrations improved compared with the
    previous months and posted an increase of 3.6% year on year (y/y)
    in the January forecast. The slow recovery in January was
    exacerbated by the improved but ongoing semiconductor situation.
    Also, the war in Ukraine continues to hold the market back. With
    inventory having already been whittled back and a lack of
    components causing many to halt production in 2022, vehicle
    availability significantly dropped, causing far weaker
    registrations. Although there has been some improvement in this
    situation, major OEMs continue to struggle to source enough
    components to address lengthy waiting lists. The main factor that
    will be hitting its performance will again be the shortage of
    semiconductors. Despite the impact of the semiconductor supply
    situation in January, vehicle availability should improve somewhat
    in 2023-24. Passenger car registrations in the European region will
    likely increase 6.2% y/y during 2023 to about 15.8 million units.
    However, this will be about 21% below the five-year pre-COVID-19
    pandemic average.
  • Sales in Europe fell 20.9% in January 2023 compared with the
    same period in 2020, before the crisis. The increase in the region
    last month was determined by opposing trends between the EU26+
    European Free Trade Association (EFTA) and the Eastern European
    market. The main factor that will affect its performance will again
    be the shortage of semiconductors. This hit most OEMs’ production
    from early 2021, but the semiconductor shortage still significantly
    affects sales volumes throughout the region. Nevertheless, there
    were strong gains in some markets. The strongest gains were seen in
    markets, such as Belgium (up 20.8%), Austria (up 19.5%), Greece (up
    89.8%), Italy (up 16.4%), Portugal (up 44.8%), Spain (up 49.1%) and
    the United Kingdom (up 14.8%). Some markets posted wins in January,
    such as France (up 8.2%), the Netherlands(up 7.7%), and Denmark (up
    1.3%). In contrast, markets such as Finland (down 7.6%), Germany
    (down 1.6%), Sweden (down 24.0%), and Norway (down 58.6%) posted
    losses in January.
  • Moreover, the implemented car stimulus programs still directly
    affect the recovery of the different markets, although some of
    these programs that started after the strict lockdowns in 2020 have
    already stopped or the incentives were lowered. Looking back to
    2022, the Western European market started weak into first quarter
    2022. However, with the increasing shortages of semiconductors and
    the start of the Russia-Ukraine conflict, the region’s performance
    gradually weakened so that demand surpassed supply. This resulted
    in long-waiting periods for ordered new vehicles, as well as
    increased demand and prices on the used-car markets. Recovery
    cycles will largely be determined by the normalization of
    semiconductor supplies that started in the final quarter of 2022.
    The risk of another winter of high COVID-19 infections and
    restrictions luckily did not happen. The crisis intensifies
    operational and economic pressures on an already-stressed global
    automotive industry, especially as OEMs and suppliers finetune
    strategies toward coping with “new normal” vehicle demand
  • We remain cautious on recovery prospects, with key markets
    likely to experience differing demand cycles. Light vehicle
    registrations in the wider Western European region will increase
    7.5% y/y in 2023 to about 12.5 million units.However, this would be
    about 21.0% below the pre-COVID-19 pandemic average in
  • We continue to forecast a winter recession. Various headwinds
    are weighing on domestic and external demand, including high
    inflation eroding household real incomes, weak sentiment, high
    uncertainty, and tightening financial conditions. Leading
    indicators, including our Purchasing Managers’ Index™ (PMI™) data,
    started to pick up in late 2022 but remain at levels indicative of
    a mild recession. Still, with energy-related risks having
    diminished recently, we have revised up our real GDP growth
  • Consumer price inflation will continue to fall in 2023. HICP
    inflation markedly declined in November and December 2022,
    under-shooting market consensus expectations in both months,
    primarily driven by energy prices. Base effects will push down hard
    on energy and food inflation rates over the coming months, and the
    moderation in surveys of industrial firms’ pricing intentions and
    declining producer price inflation rates are also indicative of
    lower core goods inflation. Services inflation rates should also
    ease as the boost from pent-up demand fades.
  • Policy rates will rise further in early 2023. Having delivered
    exceptional back-to-back 75-basis-point policy rate hikes at its
    meetings in September and October 2022, the European Central Bank
    (ECB) raised its deposit facility rate (DFR) by 50 basis points in
    December 2022 to reach 2%, the highest level since 2008. The ECB’s
    guidance remains indicative of additional rate hikes given concerns
    about persistently high inflation and related risks, and we
    forecast a peak for the DFR of 3% in March. This is supporting the
    euro, which, along with other currencies, has markedly rebounded
    against the US dollar.
  • Longer-term eurozone growth prospects will remain challenging.
    Looking beyond the short-term headwinds to growth, structural
    factors will likely restrain eurozone real GDP growth rates.
    Demographic trends are unfavorable in many member states, while
    productivity growth has been on a long-term downward trend. Member
    states with very elevated public-sector debt burdens will also need
    large, multiyear fiscal adjustments. Market pressure for fiscal
    tightening will likely build as the European Central Bank (ECB)
    reduces its policy support. We estimate a long-term potential real
    GDP growth rate for the eurozone of around 1%.
  • Light vehicle registrations in the wider Western European
    region will increase 7.5% y/y in 2023, compared with the low base
    in 2022, falling below 11.7 million units. This will be about 21.8%
    below the COVID-19 pre-pandemic average in 2015-19. However, the
    market should also continue to grow over the coming years to peak
    at about 14.0 million units in 2025. Compared with the development
    in Western Europe, demand in Central Europe was a bit stronger and
    recorded a solid gain compared with the same month in 2022, with
    105,984 units, which means a 12.9% gain. For full-year 2022, the
    market was down 5.7%. Increases and volume gains in January were
    evident in many Central European markets, such as Bulgaria (up
    9.5%), Hungary (up 14.5%), Poland (up 21.4%), and Romania (up
    22.1%). The main negative drivers in January were Slovakia (down
    0.7%) and Slovenia (down 1.5%). In addition, Eastern Europe showed
    a much weaker result compared with the other two markets in the
    European region. Demand in Eastern Europe during the month fell
    again (down 34.0%) compared with the same period in 2022. The main
    reason for this weak volume was the strong loss in the Ukrainian
    market (down 38.8%), which is related to Russia’s invasion in
    Ukraine. Moreover, the Russian market showed a loss (down 64.1%)
    compared with the same month in 2022.
  • As for full-year 2022, the European light vehicle market posted
    a loss of 11.2%, with sales of 14,881,293 units, mainly because of
    the limited supply due to the semiconductor shortages and the
    Russia-Ukraine conflict. The results were affected by losses in
    Western Europe (down 6.1%) and strong losses in Eastern Europe
    (down 33.9%). The Central European region performed only slightly
    better than the Western European market with a loss of 5.7% for
    full-year 2022. The semiconductor shortages will affect the
    short-term development, at least through the first half of
  • Protectionism is a prominent source of concern. The threat of
    an all-out trade war could be enough to defer some expenditure,
    especially investment. Emerging-market turbulence is an additional
    headwind to growth and a source of uncertainty. Political
    developments in Russia and Turkey, the potential effect on
    sovereign yields and spreads, and contagion to other member states
    also merit attention.
  • For the western part of the continent, a slight gain is
    expected in 2023, with an increase of 7.5% to 12.5 million
    units—about 850,000 units more than in 2022. The Central
    European region is also expected to improve and to achieve a gain
    in 2023. We expect a slight gain of 3.9% to about 1.36 million
    units. The gains in Western and Central Europe combined will reach
    13.88 million units in 2023—about 6.9% above the 2022 level,
    but still more than 4.2 million units fewer than in 2019.
  • The Russian-Ukrainian military conflict has caused a major
    disruption in our short-, medium-, and long-term assumptions in the
    March forecast round. The current estimates are based on a rather
    pessimistic scenario, which includes a protracted military
    stand-off; persisting sanctions against Russia on behalf of the US,
    the EU, and their allies even after the presidential elections in
    Russia in 2024; and a slow recovery in Ukraine from the damage
    caused by the military actions. In 2022, we saw negative dynamics
    in all Eastern European countries, with the major losses in those
    involved in the conflict: Ukraine (down 62.1%), Russia (down
    60.6%), and Belarus (down 63.3%), which has been sanctioned for
    offering its territory for Russian troops. The total Eastern
    European market plunged 33.9% y/y. For 2023, only a slight
    improvement is expected, the market will likely grow 2.0% up to
    1.92 million units.
  • In the current S&P Global Mobility scenario, light vehicle
    sales in Eastern Europe will surpass the volume of 2021 only in
    2033. Even then, it will not reach 4 million units. Instead, this
    should happen in 2028, within the forecast period. In the longer
    term, Western Europe is not expected to return to the 2007 sales
    peak level. Some markets may even enter a demotorization phase in
    the early stages of the next decade. Surprisingly, the recovery
    path is expected to be on the positive side. Pent-up demand is
    larger and, above all, releasing far sooner and faster than
    anticipated. This result was helped by a general environment that
    has been supportive, which includes extremely low energy prices,
    fast gains in purchasing power in many countries, and the ECB’s
    monetary policy. However, for the longer term, many of the core
    issues, including public debt, unemployment, and pension systems,
    will still be in place. Moreover, Europe will have to cope with
    structural constraints, such as dull demographics (with some
    exceptions), increasingly constraining transport legislation, and
    disruptive social evolutions (e.g., shifts in transport habits and
    relationship with cars) in the same time frame, which could hamper
    vehicle sales potential. The continent must also cope with the
    Brexit effect. Moreover, the transfer to electrification will lead
    to a phase of uncertainty because it is not clear which concept
    (plug-in hybrid electric, battery electric, compressed natural gas,
    fuel cell, gasoline, or diesel) will come out on top. In the
    private-car buyer sector especially, the uncertainty will continue
    because no one wants to remain with an “outdated” car or concept.
    In addition, OEMs’ fleet CO2 emissions targets starting from
    2020/21 will be a huge challenge for all participants and will
    affect the market structure, powertrain mix, and car prices. On the
    positive side, growth in Central European countries should become
    more sustainable, as the market is far from saturated, and new
    demand, i.e., newcomers to the new-car market, should keep
    building, along with wealth and income gains. Eastern Europe should
    also rebound in the medium-to-long term. Prospects in Turkey are
    bright, thanks to strong demographic and economic potentials.
    Russia presents a more complex case. Undoubtedly, this market can
    easily yield 2.5 million units on a regular basis, but some
    structural evolutions, e.g., creating a more diversified economy,
    are necessary to turn the fragile giant into a top player.

Europe production
January 2023: +7.1%; 1.31 million units vs. 1.23 million

Western Europe, Central Europe, and Turkey

  • With this February update, the data for 2022 production is
    virtually fully actualized. As opposed to the rest of the world
    where production fell in the fourth quarter over the third quarter,
    this area saw a sequential improvement of 17% in the last quarter.
    Looking at year-over-year development, fourth-quarter production
    grew by 14% in Europe, excluding the Commonwealth of Independent
    States (CIS), while it grew only marginally in the rest of the
    world. As a result, production posted year-over-year growth of 22%
    for the second half, and 5% on the full year.
  • Compared with the reference year 2019, European production
    decreased by 23% with Ford, Renault-Nissan-Mitsubishi, and
    Jaguar-Land Rover all down by more than 30%; Volkswagen,
    Stellantis, BMW, and Mercedes-Benz in the range of the regional
    average; and Hyundai up by 9%.
  • Looking at 2023, the general theme of supply chain disruption
    transitioning to demand concerns remains intact. While fears of
    production disruptions related to energy inputs have somewhat
    abated, the flow of chips remains a constraint, and there is
    increasing concern regarding the weight of demand on the level of
    output for 2023. Although sequential improvement clearly continued
    in fourth quarter 2022, the sales outlook becomes critical as
    inventories are back to pre-semiconductor shortage levels (yet far
    from pre-COVID levels).
  • We are projecting the build pace will stabilize in the near
    term. Given the weak base of comparison in the first half of the
    year, it translates into 5% production growth across 2023. After
    another year of recovery in 2024, volumes should stabilize in the
    range of 16.5-17.0 million units, more than 3 million units below
    the peak observed in 2017.

Russia and CIS

  • Production is this area has collapsed since the end of February
    when Russian armed forces invaded Ukraine. Production has been
    interrupted at most plants in Russia, and the ones still running
    are in restart mode with very soft volumes. Volumes in the second
    half of the year are cut by nearly one-half, with Russia itself
    being down by 70%. Although the outcome of the Russia-Ukraine
    crisis is highly uncertain, the war will likely be followed by a
    geopolitical impasse, and most official sanctions will likely be
    indefinitely in place throughout the forecast. As a result, we
    expect volumes to remain in the 1-million-unit range through the
    horizon, while production reached 1.8 million units in 2021 and 2.4
    million units in 2012-13.

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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