Event review: SMMT Webinar – Vehicle Production Outlook and Economic Forecast, 8 December 2011
Despite the UK and European economies continuing to face challenges, the automotive industry is enjoying robust demand from China, Russia, Brazil and other emerging markets, and this is yet to show signs of slowing, but the real recovery in production will be seen from 2013 – driven by major new model programmes and rising demand from Russia..
Trends and the Outlook – UK economy and markets
Robert Baker, Chief Economist, SMMT
The bad news – the UK economy
Growth in the UK economy was disappointing in 2011, and more constraints and challenges are also expected to restrain growth in 2012. The recession is ‘unfinished’, with uncertainties ahead; growth is likely to be erratic and inflation rates volatile. The Euro Zone’s debt and integrity issues are setting the financial volatility agenda, meaning a drag on confidence, credit and trade. The UK recovery will take hold, but it may not feel like recovery.
In terms of total UK new vehicle sales in 2011, volumes have stabilised, but there have been very varied trends in the mix; more volatility and possible weakness may be ahead again.
The outlook is for falling retail sales; consumer confidence is low, and is going lower, and surveys of business confidence are also very downbeat. UK growth has stalled; the outlook is uncertain, and will at best be very sluggish in 2012; although B2B and fleet markets have grown and may be stable.
There are probably sound prospects for motors, manufacturing, engineering and exporting longer term, but this forecast is tempered by the sector’s restructuring experiences of the past, role of FDI, skill base, future of the euro zone and trade or plant flows to developing markets.
European Car and Light Commercial Vehicle Production Outlook
Ian Henry, AutoAnalysis
The good news – the automotive industry
The background to European automotive manufacturing features economic and financial crises, looming recession, and policy makers lacking decisiveness.
However VMs continue to invest and expand. Are they wisely planning for the long term or wandering blindly into the abyss?
EU production to 10/11 was up 5.6%, although Oct 2011 was actually down slightly over Oct 2010. Year-to-date risers include: BMW +16%, Hyundai-Kia +23%, Nissan +17%, Land Rover +23%, Audi +19%, Skoda +18%, VW +13% and Volvo +26%. Fallers include: Fiat Group -17%, Ford -8% and Jaguar -24%.
Production Outlook overview
In 2010, 18.2m cars and LCVs were made in Europe. 19.16m units are expected to be made in 2011. Demand has been driven by German premium brands, Hyundai-Kia, Nissan and strength of LCV market. The UK is heading to 1.95m units per annum (upa) by 2016, possibly over 2m thereafter, depending on success of new models at JLR and Nissan. UK exports have been strong (around 85% in October), and there have been rising exports from Europe as a whole. Robust demand from China, Russia, Brazil and other emerging markets is yet to show signs of slowing.
2012 European production should actually be above 2007 (pre-recession) peak; assuming no global economic collapse, the real recovery in production will be seen from 2013 – driven by major new model programmes and rising demand from Russia. Production growth to 2016 will feature increasing sales of small cars, EVs and hybrids – and increased production in Russia. Assuming we do not have a complete collapse, Russia will help drive European production growth.
Germany will remain Europe’s production hub – but despite adding c600k units 2010-2016, its share of European production is forecast to fall, from c31% to c27%.
Russian production of developed world brands is estimated to grow by nearly a factor of 6, from 375,000 to almost 2.25m, or from 2% to 8.6% share of production.
Other rising production locations are the Czech Republic, Slovakia, Romania, UK – even Italy (albeit from a very low base).
Significant investment in UK
BMW and Nissan have confirmed c£700m new investment in new MINI and Qashqai. JLR is expanding its model range, increasing UK sourcing, and has also confirmed it will be build its own engine plant. GM is retaining its Luton van plant. Honda has confirmed that the new Civic 5-door is to start in late 2011, the new CRV in late 2012 – but with a slight delay owing to the Thai floods.
Toyota won the Japan export contract for the Avensis, has started production of the revised Avensis and centralised Auris production in the UK.
Aston Martin is repatriating production to the UK and Bentley is increasing UK R&D and widening its product programme, backed with modest government aid.
BMW
BMW has had very impressive 2011 results, record monthly sales in September (nearly 400k) (even with the current 3 Series near the end of its life) and year-to-date figures (over 1.23m). Financial restructuring should enable the company to remain profitable if the 2008 downturn is repeated. There will be major cost savings through the 1 and 3 Series sharing components.
Future growth will be from the new 1 Series (production has now started) and new 3 Series from 2012; start of JV with PSA in electric powertrains; collaboration with Toyota; expansion at MINI; launch of i3 and i8; and expansion in China – including exports of the 5 Series. 2010 European production = 1.22m; 2016 = 1.64m.
Daimler
Daimler has been very profitable, after an excellent 2010, but Q3 saw slowing of profits. 2010 European production was 1.31m, with 2016 forecast to be 1.59m – Daimler will be overtaken by BMW/MINI.
Fiat
Fiat now has majority stake in and effective control over Chrysler, with ambitious shared model, platform and manufacturing plans proceeding; 2010 European production was 1.69m, 2016 forecast to be 2.44m.
Ford
Ford’s European operations were profitable in 2010, but back into the red in Q3/2011. 2010 European production = 1.76m; 2016 = 1.97m.
GM Europe
GM is still likely to be loss-making in 2011, but breaking even at operating level. GM has completed reorganisation of European operations, and the future of the Luton van plant has been confirmed through to the mid-2020s. 2010 European production = 1.31m; 2016 = 1.54m.
Honda
New Civic now started production, slight delay due to Thai floods; Swindon will be the sole production location for the 5-door hatchback version. UK and Turkey plants should double production 2010-16, 150k to nearly 300k.
Hyundai-Kia
Full-scale production in Russia is now under way. 2010 European production =506k; 2016 = >910k.
PSA
Strong 2010 financials, moving from loss to €1.5bn profit, with record global sales of 3.6mn units. Increasing focus on hybrids, EVS, crossovers/MPVs and Citroen DS brand – DS brand the main growth element in PSA. 2010 European production = 2.36m; 2016 = 2.62m – still below 2007 peak. Will build 300k upa plant in India – widening Asian focus beyond China, but China on target to be PSA’s largest market.
Renault Nissan Alliance
Renault 2010 revenue up 10%, significant profit vs. loss in 2009; trend continued in Q1/2011, but H1 and Q3 figures suggest slowdown in growth and recently announced production cutbacks. Main growth will be outside Europe, ie Brazil and Russia. Leading the market in purpose-designed EVs – Fluence, Kangoo EV, Twizy and Zoe.
Nissan had record production in the UK in 2010 and in 2011, pre-earthquake. New Nissan Qashqai will be designed, developed and built in UK, for worldwide markets.
Dacia production is rising – not just in Romania, but also Russia.
Combined Renault-Nissan-Dacia production growth is forecast to rise from 2.45m in 2010 to nearly 3.5m in 2016 – increase due to Nissan UK, Dacia Morocco and Renault/Dacia in Russia – not core Renault brand in EU.
Tata JLR
JLR has confirmed a new UK engine plant – to eliminate engine dependency on Ford. Its model line-up is growing, with the Range Rover Evoque being the first of many new models. If all goes well, production should double 2010-2016 from c242k to c495k.
Toyota
Toyota was the hardest hit of all Japanese VMs by the earthquake, had hoped to be back to normal by year end, although full recovery may take until 2012 following Thai floods. Auris production is to be concentrated in the UK, with additional £100m investment and 1,500 new jobs. Total Euro production should grow from 477k in 2010 to c643k in 2016.
Volkswagen Group
Continues to go from strength to strength; 2010 European Group production was 4.28m; 2016 estimated to be 5.86m. Record turnover and global sales in 2010; strong performance continued through to Q3: 46% increase in operating profit and 25% increase in revenue. Heavy investment in European plants and two new Chinese plants confirmed. China is now Audi’s biggest market.
Volkswagen, Audi and Skoda are all contributing to profits – but SEAT and Bentley are still loss-making: Bentley will add an SUV in effort to raise volumes in pursuit of profitability. SEAT halved losses in Q3.
The success of the Audi product range has led to capacity problems. The Skoda model range is widening significantly, and the VW Up! range is now in production, which should lead to a further boost in production volumes.
Alliance with Suzuki coming to an undignified end following corporate fall-out.
The Chinese in Europe:
Geely Volvo
Limited new model plans and platform strategy information released so far – less than had been expected. Focus will be on China – c400k upa capacity being added there.
Saab
Possibly in final stages of its existence – currently under court protection. GM threatening to block takeover by Chinese; production stopped since June.
In conclusion
• Outlook still assumes no double-dip recession
• Strong production growth of 2010 has continued in 2011, but slightly slower than previously expected
• 2011 expected to reach 19.2m units in Europe – but lower than previous Outlook due to slowdown in France, delayed model launches at Fiat, disruption at Japanese VMs due to Thai floods and economic uncertainty
• Overcapacity issue has been pushed to one side in Europe – but will arrival of Chinese and growth of production in Russia mean it once again comes to the fore? Ironically, Audi has not got enough capacity – will BMW and even Mercedes have the same problem soon?
• Russia will be the focus for many VMs in the next few years – Renault, Ford, Fiat, GM and VW will help European, Korean and Japanese VMs produce c2.25m vehicles in the country by 2016
• Strong production growth also expected in the UK, Germany and Italy, each of which will see at least 500k more vehicles pa produced by 2016. Czech, Morocco, Hungary, Serbia and Slovakia will each add >200k pa by 2016.
