Arthur Maher is head of European Forecasting for JD Power & Associates. A holder of three economics degrees, he has followed the automotive industry for over 20 years and has extensive knowledge of demand forecasting techniques, policy analysis and sourcing dynamics. He joined JD Power Automotive Forecasting Services in 1996 and here he outlines his forecasts for 2011.

European production continues to edge up with each passing month and this is apparent from the statistics in the last few months. With export volumes remaining robust and stock holdings looking healthy (i.e. the sector does not look overstocked!), the outlook is continuing to improve. Indeed, we have seen BMW, Mercedes and Nissan (UK) announce additional build over the traditional Christmas shutdown period and this would suggest a good order bank and possibly tight stocks on entering into 2011. The same, however, cannot be said for the likes of PSA, Renault and Fiat.

Light vehicle production in 2010 should be a fraction under 19.0 million units, an increase of 13.7% over the previous year. JD Power’s analysis nevertheless continues to suggest that build in the next two quarters will fall back year-on-year, to leave 2011 build a shade down on 2010 at 18.7 million units (-1.6%).

European production over the last five quarters almost mirrored the sales scenario, falling dramatically in the fourth quarter of 2008 to a low point in January 2009 of almost 50% down year-on-year. Once again there was a steady increase as the year progressed and into the first two quarters of 2010. Production, in line with sales, began to fall again from the third quarter. The fall in production from the end of 2008 and through most of 2009 had the effect of normalising stock levels which had been very high twelve months earlier.

A stock analysis suggests that the sector has finally reached a balanced position, and, if correct, this is one of the biggest positives since the financial crisis erupted. Another positive for the sector remains improving export volumes. European exports, which had slumped in 2007-2009, grew substantially in 2010 by 250,000 units. It is estimated that this will continue in 2011, albeit at a slower rate, with exports up by just under 100,000 units year-on-year.

Pan-European Production Volumes (‘000s)

European capacity utilisation is currently running at 65% and this is where JD Power expects it to remain in 2011. Excess capacity is 9.4 million units.

Despite the Irish banking bail-out, there remain concerns in the financial markets about the risk of a double-dip recession, something which JD Power has highlighted extensively over the last year. In this scenario, we would be looking at European build of 17.4 million units (-8.6%) in 2011. In this alternative scenario, while build would fall sharply year-on-year in Q1 and Q2 of 2011, the recovery we envisage in our base case of Q3 would fail to materialise.

Of the eight leading European OEMs only two, Ford and BMW, are forecast to increase production in 2011, by just over 2% and just over 1% respectively. In the first quarter of the year, production of BMW Group’s Mini Countryman in Graz, Austria will boost the Group’s figures. The third quarter of the year will see production of Ford’s Focus C346 at its Saarlouis plant. Production at Daimler, General Motors, Volkswagen Group, PSA, Renault/Nissan and Fiat is predicted to fall, with Renault/Nissan and Fiat expected to show decreases of 7% and 9% respectively. In the fourth quarter, PSA production will reflect the new Peugeot 508 being built at the Rennes plant and the Citroen DS5 at Poissy.

The economic outlook for Europe is still highly uncertain with the re-emerging of a sovereign debt crisis. All major economies are under pressure to cut budget deficits rapidly and the rising levels of unemployment and business failure are feeding back into banking. Oxford Economics, one of the leading economic forecasting consultancies, has assessed the downside risk at 35%.

The factors which drive the automotive market are:-

• The growth of disposable income
• Consumer and business confidence
• The availability of credit

Consumer expenditure growth of 2%, cyclically adjusted, is typically required for stable market demand. Sluggish growth – below 2% in mature markets – may lead to an automotive recession.

European Light Vehicle Production by Region and Country

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