Barcelona, April 20, 2020.- The ECG is the European employer association of companies dedicated to the logistics of the finished vehicle. Their reports and analyzes are a reference and more in the current situation. He has just published his diagnosis on the measures to be taken in the coming weeks. We publish the full text in two parts.

Spain has become in many ways the European country worst affected by the coronavirus, overtaking Italy in terms of deaths per 100,000 population. Spain announced its lockdown on March 15th. As a result, vehicle registrations fell 69.3% in March compared to March 2019. Things will get significantly worse in the coming months. 

However, as in Italy, Spain has had some more positive signs of late as new infections and deaths from Covid-19 show signs of declining. The country has extended its current lockdown until May 10th but will allow some shops and non-essential businesses to reopen. Similar to Italy, the government is also expected to ease rules that will support the resumption of vehicle output. 

Nonetheless, given the scale of the crisis here, we expect many of Spain’s restrictions to persist for months to come. As elsewhere, any easing of restrictions after that would likely take some time, and so any recovery in Spanish sales is unlikely until later in the year. 

Spanish vehicle production – which ranks second in Europe after Germany – would also be depressed, largely from the slump in UK and EU demand. Most of the brands with large plants in Spain look set to be hurt deeply by the crisis. Most also produce mainly for Europe, including Seat, Ford, Renault-Nissan and PSA Group, and may have limited room for growth in the short term. 

The shutdowns have already impacted on the jobs of nearly 1.14m workers employed directly by vehicle manufacturers across the EU

The fates of thousands of companies across the European automotive supply chain depend upon vehicle production and distribution restarting across the continent. The longer assembly lines and vehicle sales operations remain in what can be described as a coma – medically induced to battle the spread of the novel coronavirus – the longer it is likely to take OEMs, suppliers and service providers to wake operations back up. 

Without coordinated planning, monitoring and direct support and collaboration across OEMs and their suppliers, there is a risk that some might not be able to come back at all as they run into liquidity shortages. A range of companies face this risk of insolvency, including specialist tooling manufacturers, car retailers and freight carriers – including finished vehicle logistics providers. 

According to ACEA, the European Automobile Manufacturers Association, the shutdowns have already impacted on the jobs of nearly 1.14m workers employed directly by vehicle manufacturers across the EU and UK through the first week of April – with the true impact across the wider supply chain much higher. 

The good news is that vehicle manufacturers are set to resume some operations in Europe, including the partial reopening of assembly plants already, and preliminary start dates at others later in April and May. But production and supply look likely to be anything but a ‘return to normality’ either in volume or in processes. For example, manufacturers and suppliers need to adjust operations to prevent the further spread of the coronavirus by limiting human contact and introducing significant amounts of personal protective equipment (PPE). 

Output is also likely to be volatile, with significant risks across the supply chain that could prolong closures or cause new ones. A particularly worry would be financial distress at small- and-medium-sized suppliers, including specialist toolmakers and outbound vehicle logistics carriers. 

Meanwhile, without a wider coordination of the restart – at a European level, for example – to manage supplier orders, vehicle priorities and even PPE standards and supply, many suppliers and logistics providers could struggle to meet demand just when it will be most needed. 

Any restart of production at a high scale will ultimately depend on the extent to which governments can ease lockdowns and allow vehicle sales to resume. In most European countries, dealer sales offices and official registration offices have been ordered closed, and wider personal mobility curtailed. And with most major export markets still facing restrictions, export orders will remain low until a wider recovery can take hold. 

In other words, even if plants find ways to safely and stably operate, few would remain open long so long as orderbooks cannot be filled, and the outbound distribution chain has no real destination. 

2.2 A new era of supply chain resilience 

Even this complex and uncertain outlook does not mean that the automotive supply chain and logistics sectors should remain in a comatose state until the pandemic is over. Firstly, such a clear ‘end point’ is unlikely to appear suddenly. We expect some form of lockdown to continue in most major European markets – especially those hit hardest by the crisis – for several months, even as countries make small steps to ease the harshest restrictions. 

Even by the time lockdowns are eased later this year, the virus is unlikely to be eradicated completely. Instead, the automotive supply chain – like the rest of the economy – will have to adapt new requirements to contain its spread and manage the volatility likely to persist in both supply and demand. Along with new safety measures and PPE, we anticipate a much greater requirement for supply chain visibility and resilience. For example, uncertainty in global supply regions will require robust tracking and mitigation strategies, such as finding supply alternatives and building up higher inventory levels where needed. 

The same is likely to be true for outbound logistics in terms of allocating vehicles to meet demand. While a deep recession is by now unavoidable, the reopening of markets from near zero levels of vehicle sales is still likely to release some measure of pent-up demand. Our current vehicle demand and production forecasts, for example, expect rebounds in volumes once restrictions are eased more significantly. This will likely vary by market and be pushed back even further depending on the development of the pandemic. However, when demand is awoken, supply chains are likely to face bullwhip effects up and down – especially should governments apply further stimulus measures. 

Those companies able to keep plants running and move vehicles quickly at the right time will have a significant advantage. OEMs will need to work more closely than ever with suppliers and freight providers on planning, organising storage and buffers, and moving quickly to consumption points where needed. 

Indeed, if there is ‘good news’ to come from the crisis – measured in very relative terms – it would be the likeliness that supply chain and logistics management becomes a much more obvious strategic advantage for the automotive sector than before. It has already proven to be in other sectors, especially food, medicine and other areas of ecommerce. 

It is still too early to live on this hope. And in the long run, the financial pain suffered by many companies, along with the potential for a protracted recovery, suggest that cost pressure and efficiencies will be significant across supply chain and production operations. However, getting started in the current crisis will take significant energy and resolve across OEM departments and suppliers. Now is the time to prepare, communicate and collaborate to put plans for more resilient supply chains into action. 

2.3 Measuring the impact of lockdowns on demand and production 

The coronavirus pandemic has already decimated European vehicle sales and production, and its effects will be felt even more significantly in the coming months. Even as some countries show tentative signs of containing the disease, and the potential to ease some social and economic restrictions, it will take longer for vehicle markets to recover. 

March registration figures provided the first indication of just how severe the lockdowns will impact European vehicle sales. Western European vehicle sales were down 52.9% compared to March 2019. In markets with lockdowns in place, car sales have come to virtual standstills. New vehicle sales dropped around 70% in Spain and France, and 85% in Italy. In Germany and the UK, where some restrictions began earlier but stricter lockdowns came in nationwide later in the month, declines were closer to 40%. 

Most major European countries implemented lockdown strategies around mid-March 2020, with some countries such as Italy and France starting slightly earlier and others, such as Germany and the UK, somewhat later. Non-essential businesses, including car dealership sales in most cases, have been closed. 

Some parts of eastern Europe also implemented lockdowns later, or with fewer restrictions. For example, Croatia and Slovakia have mostly had partial lockdowns. The Netherlands, meanwhile, has deployed an ‘intelligent lockdown’, targeting vulnerable parts of the population but less severe than other countries. In Sweden, restrictions have been much more limited, with no official lockdown so far. In such markets, March sales declines were milder. 

We estimate that the wider European market will have fallen by 50% overall in vehicle registrations in March (see Figure 1 in section 3). The different levels of penetration and containment of the coronavirus will ultimately be a deciding factor in how long restrictions stay in place (see Table 5 in section 7). 

A similar trajectory will also be evident for vehicle production, which began to wind down once the lockdowns came into place, impacting virtually every vehicle assembly plant in the EU and UK. According to ACEA, nearly 1.47m passenger and commercial vehicle units had been lost from the shutdowns through the first week of April. 

Even with variations in sales and production early on, as well as variations in the severity and length of lockdowns, we expect that all major countries in Europe are heading for significant declines. The shock to the global economy and massive collapse in trade – which the IMF predicts will be the worst since the Great Depression – will cast a shadow on the vehicle sales and production outlook. Supply and product shortages will also restrain even those markets without a lockdown. 

In our worst-case scenarios, we forecast drops in European total vehicle output of close to 30% compared to 2019. Those would be steeper annual declines than seen during the financial crisis – and they could still be revised down further depending on the development of the pandemic and the extension of quarantine measures. 

2.4 Managing an ‘easing’ of restrictions 

There are, however, some green shoots that the health crisis in Europe might be approaching or have surpassed the peak in many markets. Daily deaths and hospitalised cases have begun to fall in Italy, Spain and France. Italy and Spain have lifted restrictions on some types of businesses. 

Germany, Austria and Denmark have sustained relatively low death rates and look set to begin loosening some restrictions in the second and third week of April. In the UK, where cases and deaths have risen sharply – and where the prime minister has been struck by the disease – many experts nevertheless believe the nation to be approaching the peak. 

Several central and eastern European countries, including Poland, Hungary, Slovakia, the Czech Republic and Romania, appear to have contained the spread of the virus and have already lifted some restrictions. 

However, even the so-called ‘flattening of the curve’, in which cases and deaths fall, does not indicate the end of the pandemic, and certainly not the quick reversal of economic fallout. Lockdowns look unlikely to be lifted so much as ‘eased’ – phased reopening of businesses and economic activity, but still with requirements on social distancing. In our estimates, we forecast that some variation of a lockdown will persist for 4-6 months in the worst-hit countries, including Italy, Spain, France, the UK and Belgium.

Despite the persistence of lockdowns, we expect countries to start allowing vehicle sales again, and take further measures to support manufacturing. But so long as strict measures are in place on economic activity and mobility, vehicle sales and production activity will remain limited. 

This volatile situation makes the European vehicle market particularly difficult to forecast. But we still see room for recovery. As can already be seen in China, economic activity can be restarted even under ongoing restrictions. After falling 80% in February in the grip of the crisis, Chinese vehicle sales dropped around 50% in March as restrictions began to ease. Many OEMs and dealers report strengthening showroom traffic that could point to reasonable recovery. Even Wuhan, the original epicentre of the disease, has lifted the strictest measures of its lockdown, with manufacturers reporting that vehicle production and sales are returning to normal levels. 

By all available accounts, many European countries have been worse hit by the coronavirus crisis than China, with far more deaths as a proportion of population. However, demand should still start to recover in the months following the easing of restrictions. While ‘V’- shaped recoveries for vehicle sales are unlikely in our view, we expect that monthly volumes will start to approach and then exceed normal monthly levels later in the year as some pent- up demand is released and likely government incentives are implemented. 

We do, however, expect sales and production to remain at restrained levels for some time. In all scenarios, our longer-term forecast is for vehicle sales not to recover to pre-crisis levels until well into the decade – but we do expect them to recover. 

3. European vehicle sales and production forecast update 

3.1 Vehicle registration 2020 outlook: Best, base and worst-case scenarios 

We have forecasted monthly 2020 European vehicle demand based on three scenarios and compared them to our ‘business as usual’ forecast (BAU) – our expectations for sales had the current crisis not occurred. The forecast is based on an aggregate of 26 markets, including the UK and EU minus Cyprus and Malta, and includes passenger and commercial vehicles. (For more on our forecasting methodology, see section 7.) 

„ Business as usual – A fall in volume of 360,000 units (-2% from 2019)
„ Best case – A fall in volume in 2020 of 1.2m units ( -6% from BAU, -8% from 2019)
„ Base case – A fall in volume in 2020 of 2.6m units (-13.2% from BAU, -15% from 2019) 

„ Worst case – A fall in volume in 2020 of 5.6m units (-28.5% from BAU, -30% from 2019) 

Business as usual 

This is our outlook for Europe had the coronavirus had not occurred. We had already expected 2020 to see sales decline by 2% compared to 2019, as OEMs faced headwinds from slower economic growth, trade uncertainty and rising regulatory costs. The forecast accounts for the normal seasonality that we would expect due to various registration plate periods throughout the year. 

Best case 

In this (less likely) scenario, we would expect an average eight-week lockdown across Europe from the middle of March to the middle of May. The impact on automotive markets would be felt most significantly over the next two months, but demand and consumer confidence would rebound relatively quickly and start rebounding as early as June as pent-up demand is released. 

Under this scenario, monthly sales across Europe would fall by as much as 90% year-on-year in April – with most major markets almost entirely ‘paused’ during the strictest period of lockdown – followed by declines less severe thereafter. By the end of the summer, however, monthly sales could be as high as 47% above normal levels, before levelling off. 

While this does not necessarily imply a ‘V’-shaped recovery, some lost volume would be recovered. In the best case, 2020 volume would finish 7.8% lower than 2019, or 6% below our business-as-usual forecast: that would equate to more than 1m lost units of European sales as a result of the coronavirus pandemic. 

Base case 

In this (more likely) scenario, we expect an average lockdown across Europe of three months from the middle of March until mid-June. The impact on automotive demand and supply chains would only start to recover to normal volumes over the summer. 

Under this scenario, monthly sales across Europe would fall by as much as 95% year-on-year in both April and May, with declines only levelling off in summer after the lockdown eases further. But sales would then rise by as much as 47% above normal levels at the end of summer before levelling off at above-average growth. 

In the base case, Europe sales would fall by 15% compared to 2019, or 13.3% below our business-as-usual forecast: that would equate to more than 2.3m lost units of European sales as a result of the coronavirus pandemic. 

Worst case 

In this (less likely but still plausible) scenario we expect an average lockdown across Europe of four months from the middle of March to the middle of July with demand only starting to recover to normal by the end of the summer. 

Under this scenario, monthly sales would fall as much as 97% year-on-year in both April and May and 92% in June, with declines levelling off in summer after the lockdown is eased. There would be less pent-up demand following this level of economic damage, however monthly sales could still rise by as much as 25% above normal levels by the end of the year. 

In this scenario, Europe sales would fall by 30% compared to 2019, or 28.5% below our business-as-usual forecast: that would equate to more than 5m lost units of European sales as a result of the coronavirus pandemic. 

3.2 European vehicle sales market under lockdown 

During the strictest periods of the lockdown, we expect an unparalleled drop off in vehicle demand to less than 5% of normal volumes. In most countries, the vehicle sales departments of car dealerships have been deemed non-essential business and ordered closed (parts and service centres are usually still open). These could be allowed back open in phases, but sales will likely remain low until stricter restrictions are lifted. 

We do, however, expect some level of sales activity during the main lockdown periods: 

• A low level of online sales activity and lease renewals (although renewals will be severely 

limited, not least as defaults may increase as a result of the crisis). 

• Some commercial fleet renewal, driven especially by ecommerce demand and for essential 

food, medicine and pharmaceuticals. 

• Regions with fewer restrictions, most notably Sweden, which is not in lockdown, and parts 

of eastern Europe with lighter lockdowns and possibly quicker recoveries, such as Poland. 

Once the lockdown is eased across Europe, a recession is likely to continue and there will be ongoing damage to consumer confidence. However, under all three scenarios, we foresee short-term sales rebounds due to pent-up demand in the immediate months following the easing of restrictions. 

Furthermore, there are likely to be many government and industry initiatives to drive a demand recovery to help the automotive industry recover. These could include:

• Government scrappage schemes. 
• Tax incentives. 
• Purchase subsidies for hybrids and electric vehicles. 
• 0% finance and leasing deals from OEMs. 

There will be challenges and questions around any such incentives, however. Any scrappage scheme that encourages purchases of internal combustion engines – which still make up the majority of vehicle sales and production – could be politically difficult in the face of strict EU CO2 emission fleet targets. On the other hand, incentives specifically for electric vehicle and ultra-low emission vehicles might trigger supply issues or incentivise imports. Nonetheless, we expect policymakers and industry to strike a balance in most cases. 

3.3 Europe vehicle registrations forecast 2020-2030 

The effects of the pandemic on automotive demand in Europe will reach well beyond 2020. Once the short-term unwinding of pent-up demand occurs by the end of the year or even early in 2021, we expect sales volumes to level out. We would expect 2021 to improve only marginally upon 2020 volumes as the wider economy struggles; overall European sales volumes could take five years or longer to recover to pre-coronavirus crisis levels. 

In our business-as-usual forecast, European volumes were expected to soften and decline further over the coming years, bottoming out in 2023. Now, even under our best-case scenario, volumes will not recover to pre-crisis levels until around 2026. 

In all other scenarios, we are likely to enter a major global recession in 2020 with a sharp contraction of GDP and global trade, supressing business investment and job creation, leading to rising unemployment and a long-term fiscal drag. 

In our worst-case scenario, the deep damage to consumer confidence will mean suppress volumes below pre-crisis levels until 2028. In this scenario, the cumulative lost vehicle sales units in Europe as a result of the coronavirus from 2020 to 2028 will number around 20.5m units – around a full year of sales.

The good news is that all scenarios see volumes eventually recovering above pre-crisis levels. Many factors make such forecasts volatile, including current oil prices and the pace of global economic recovery. But we see a long-ter demand for vehicles and mobility in the European economy. 

3.4 Vehicle production 2020 outlook: Best, base and worst-case scenarios 

As for vehicle demand, we have forecasted European vehicle production across the EU and UK for passenger and commercial vehicles for 2020 in a ‘business as usual’ forecast (BAU) – our estimates had the current crisis not occurred – and compared it to three scenarios. The forecast covers passenger and commercial vehicles. (For more on our forecasting methodology, see section 7.) 

„ Business As Usual – A fall in volume of 375,000 units (-2% from 2019)
„ Best Case – A fall in volume in 2020 of 1.16m units ( -4.8% from BAU, -6.2% from 2019) „ Base Case – A fall in volume in 2020 of 2.53m units (-13.3% from BAU, -11.8% from 2019) „ Worst Case – A fall in volume in 2020 of 5.3m units (-28.4% from BAU, -27% from 2019) 

Business As Usual 

This is the outlook for Europe if the coronavirus had not occurred. We had already expected 2020 to see production decline by 2% compared to 2019, as OEMs faced headwinds in Europe and as global trade and exports slowed in other markets as well. 

Best case 

In this (less likely) scenario, we would expect an average eight-week lockdown across Europe from the middle of March to the middle of May. The impact on automotive production would be felt most significantly over the next two months, with plants almost entirely shutdown. As sales resume, production ramp up could also be subject to disruption from supply and labour issues. 

Under this scenario, monthly vehicle output across Europe would fall by as much as 98% year- on-year in April, with some output resuming in May and staying well under normal levels into the summer. However, production could see a short-term spike above normal levels by the end of the summer to support sales recovery and exports (and in response to seasonal adjustments), before levelling off. 

In the best case, 2020 production volume would finish 6.2% lower than 2019, or nearly 5% below our business-as-usual forecast: that would equate to nearly 800,000 lost units of European production as a result of the coronavirus pandemic. 

Base case 

In this (more likely) scenario, we expect an average lockdown across Europe of three months from the middle of March until mid-June. The impact on automotive production and supply chains would be significant, including longer shutdowns and longer periods to recover from supply disruption and to make adjustments adjust production to protect labour. 

Under this scenario, monthly vehicle output across Europe would remain mostly shutdown through May, with some production resuming in June. However, vehicle output could see a short-term spike above normal levels by autumn to support sales recovery and exports (and in response to seasonal adjustments), before levelling off. 

In the base case, 2020 production volume would finish 13.3% lower than 2019, or nearly 12% below our business-as-usual forecast: that would equate to nearly 2.16m lost units of European production as a result of the coronavirus pandemic. 

Worst case 

In this (less likely but still plausible) scenario we expect an average lockdown across Europe of four months from the middle of March to the middle of July with production only starting to recover thereafter. The impact on automotive production and supply chains would mean even longer shutdowns and potentially longer periods needed to recover from supply and labour disruption. 

Under this scenario, monthly vehicle output across Europe would remain almost entirely shutdown through June, with more production resuming only over the summer. However, by the end of the year output could see a short-term spike above normal levels to support sales recovery and exports (and in response to seasonal adjustments), before levelling off. 

In the worst case, 2020 production volume would finish 28.4% lower than 2019, or around 27% below our business-as-usual forecast: that would equate to nearly 5m lost units of European production as a result of the coronavirus pandemic. 

3.5 European vehicle production under lockdown 

Once lockdowns are eased and the recovery starts, there will be challenges in re-starting production plants and the accompanying extended supply chains en masse across Europe and elsewhere. While the demand shock is still likely to be most crippling, production will be highly sensitive to failures of suppliers, inventory issues out of other regions and even potential financial troubles among logistics providers (see section 4.4).

A significant share of European production is also exported beyond the continent, and these volumes are likely to remain subdued, and dependent on how other major regions – notably the US, China and other parts of Asia – can contain and recover from the crisis. A stronger recovery in China could help drive demand for some vehicle production, especially for premium OEMs. 

Once the recovery gains pace, we still see scope under each of the three scenarios for rises in production later in the year in line with demand. The upper constraint here, besides potential supply disruption, would be that overall production capacity is limited. But overcapacity in European plants, which has been most notable in countries such as Italy and France, may actually be a short-term advantage. We estimate that full capacity utilisation in Europe of around 2m vehicles per month could be achieved in the autumn of 2020. 

However, in 2021, we expect production to subside to more normal levels in line with demand, with only slightly higher overall volumes compared to 2020, but still below pre-crisis levels. Although we have not yet updated our longer-term production forecast for Europe, we expect it to recover slowly, with output unlikely to surpass pre-crisis peaks until later in the decade. 

*Note: we will have a longer-term European production forecast in an upcoming update, which requires further consideration of global export and powertrain demand 

3.6 Market snapshots 

Europe’s highly interconnected automotive industry and supply chains mean that the fortune of the overall region will depend on all countries being able to resume economic and industrial activity. However, there are variations in the outbreak and containment of the disease, which will play a major role in when lockdown restrictions are eased, and thus when sales activity can resume. 

3.6.1 Germany

Germany, Europe’s largest vehicle sales and production market, implemented its lockdown on March 22nd, almost two weeks after Italy. This resulted in German vehicle registrations falling 37.7% in the month compared to March 2019 – a less precipitous fall than elsewhere. However, this will change in the coming months with restrictions in place. 

However, Germany’s strategy of intensive coronavirus testing compared to other European countries may have contributed to better containment of the virus. It has one of the highest numbers of confirmed cases globally, however its death rate is well below the European average, although still far higher than in China or South Korea 

With cases falling, Germany is set to loosen some restrictions sooner than elsewhere, 

th including reopening some small shops, and reopening schools starting May 4 . Social 

distancing requirements, however, will stay in place, and thus be required for production, which some German OEMs are set to resume the week of April 20th. Output will still largely depend on the resumption of vehicle sales, which German automotive lobbies, including the VDA, have said the government should allow soon. 

The German government has been working with the country’s car industry to manage the pandemic, including building ventilators and sourcing protective equipment. It has also started to work with industry on establishing procedures that would allow vehicle assembly plants to resume production safely. Some component plants have already been operating at low levels, for example supplying components for China. 

However, the German federal government remains cautious, wary of adopting measures that would allow a new surge in cases. We think it likely restrictions will be eased very slowly, with vehicle sales in Germany depressed for months to come. However, overall economic and industrial activity could resume earlier in Germany, with around two months of tighter restrictions our base assumption 

Germany’s export-driven and integrated supply chains mean that even if vehicle sales and production resumed earlier, German output would remain at low levels until markets in Europe, the US and Asia started to recover. The potential resurgence of the Chinese vehicle market as the year goes on could provide some succour for German exports, but the opening of European markets will be most important. 

(Tomorrow we will publish the second part of this ECG Report)