Decline in Auto Sales to Accelerate on Expanding Coronavirus Impact – Moody’s
Moody’s in March 27th update said “As the economic fallout from the coronavirus COVID-19 outbreak continues to worsen, we are once again reducing our global auto sales forecast. We now expect global auto unit sales to plunge about 14% in 2020, a far steeper drop than the 2.5% decline we had projected in February. Our industry outlooks on auto manufacturers, North American auto parts suppliers and European auto parts suppliers all remain negative. The extent and timing of an eventual sales recovery remain uncertain. A sales rebound is likely in 2021, helped by an easier year-over-year comparison. But the strength of the recovery will depend in large part on how soon the outbreak peaks in key markets and how quickly consumer sentiment recovers. Amid health concerns and falling demand, automotive production has been temporarily suspended in Europe and North America. Auto manufacturers are also vulnerable to coronavirus-related disruptions because of their reliance on international supply chains and their exposure to the Chinese market, where auto plants had begun shutting down earlier but have mostly reopened. As a result of the sharp deterioration in market conditions, we have announced rating actions on numerous automakers and auto parts suppliers.”
» The global economy is entering a recession. Because of coronavirus-related shocks, we now expect G-20 GDP to contract 0.5% in 2020, before recovering to 3.2% growth in 2021. The drop in business activity will be particularly severe in the first half of this year, when we expect economic contractions of 5.4% in Germany, 4.5% in Italy, 4.3% in the US, 3.9% in the UK and 3.5% in France. For full-year 2020, we expect a 2.0% contraction in G-20 advanced economies and GDP growth of 1.9% in G-20 emerging market countries.
» Western Europe will experience the steepest drop-off in demand. Europe has become a major epicenter of the coronavirus outbreak, with the reported death toll in Italy recently topping that of China, where the pandemic originated. We expect Western European auto unit sales to plummet 21% this year, which is sharply weaker than our previous forecast of a 4% decline, mostly because of a sharp coronavirus-related drop-off in consumer demand. We expect euro area GDP to contract 2.2% in 2020. The extent of the outbreak's impact on European consumers will depend on the extent of government efforts to support companies and prevent mass layoffs. Another factor in the decline is a difficult year- over-year comparison after automakers discounted vehicles in late 2019 that they were phasing out to comply with the European Union's stricter emissions limits on new cars, which took effect on 1 January. We expect a rebound in sales during 2021, driven in part by car purchases that had been postponed from the prior year.
» We expect auto unit sales in China to fall 10% this year, a steeper decline than our previous projection of a 2.9% drop. The coronavirus impact on demand was most pronounced in February, when sales fell 79% from year-earlier levels, resulting in a 42% decline in auto sales during the first two months of 2020 from the same period last year, according to the China Association of Automobile Manufacturers. We expect the drop in sales to narrow through the first half as both production levels and demand improve, before swinging back to growth later in the year and during full-year 2021. We expect China's economy to expand 3.3% in 2020 and 6.0% in 2021.
» US demand declines as outbreak spreads nationwide. Amid falling demand in the wake of the coronavirus outbreak, we expect US light vehicle sales to fall at least 15% in 2020, weakening from our previous forecast of a 1.2% decline. We expect US GDP to contract 2.0% in 2020 as consumer spending slows amid eroding consumer confidence and financial market volatility. According to the Centers for Disease Control, the number of COVID-19 cases in the US continues to surge, with infections reported in all 50 states, the District of Columbia, Puerto Rico, Guam and the US Virgin Islands. The broadening efforts to contain the outbreak have extended to General Motors Company (credit facility Baa2 review for downgrade), Ford Motor Company (Ba2 review for downgrade) and Fiat Chrysler Automobiles N.V. (Ba1 review with direction uncertain), which have agreed with their respective unions to temporarily suspend production in the US, Mexico and Canada through 30 March to implement protective measures at their factories. Demand should recover modestly in 2021.