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Europe Automobiles & Auto Parts PMI signals a renewed
acceleration in production decline
Supply chain delays and the outbreak of COVID-19 disrupt output
across Europe
Demand conditions worsen following widespread virus containment
measures
The escalation of the coronavirus disease 2019 (COVID-19)
outbreak across Europe in February and March, and the temporary
closure of factories are putting production across the automotive
industry under strain. Growing numbers of producers are stating
that over the coming weeks raw material shortages and supply chain
disruptions will become increasingly apparent and likely affect
production. In addition to the supply-chain constraints, demand
conditions are now also worsening.
Recent data from the IHS Markit EU Sector PMI signalled an
eighteenth successive decline in output across the automotive
sector in February, with the outbreak of COVID-19 exacerbating
already weak demand conditions, especially in China. The pace of
contraction was the fastest since last September, when Brexit
uncertainty and a drop in Chinese client demand hit the sector.
Automotive industry shows early signs of COVID-19
outbreak impact
The evolving picture across the European automotive industry is
moving at an ever-quicker pace as factories and countries are
placed under increasing levels of containment. At the time of
writing, the worst affected country was Italy, where travel has
been restricted and public gatherings banned, alongside factory
closures in the manufacturing-intensive north. As a result, supply
chain disruptions are likely to worsen as key suppliers such as
MTA, an electronics company supplying well-known automotive
manufacturers such as BMW, Renault, Peugeot and Fiat/Chrysler, were
forced to cease production earlier in the month amidst the
escalation of the outbreak.
Although we do not know the full impact such disruption will
have, and may not until the second quarter of 2020, the
deterioration in vendor performance is already becoming apparent.
Data from the IHS Markit Suppliers' Delivery Times Index across a
range of surveys signalled the emergence of disruption as early as
the end of February, and delays will only have been extended since.
Longer lead times and raw material shortages will have worsened in
the intervening period as more and more companies are forced to
close their doors for the foreseeable future.
Uncertain outlook for manufacturers
At the time of writing, almost all major car manufacturers in
Europe have announced factory closures due to supply shortages or
imposed shutdowns. Meanwhile, large and commercially important
automotive shows have been cancelled in response to restrictions on
large gatherings. Crucially, it is unknown how long such closures
could last for. Those who remain open could also see production
halt in the near future, as raw materials ordered 3-4 weeks ago
when factories in China closed, are delayed.
Following what was generally seen as a difficult year for
automotive producers in the EU in 2019, due to changes in emission
regulations, weak demand from China and uncertainty surrounding
Brexit, 2020 does not appear to be any less challenging.
Furthermore, with growing fears of an increasingly widespread hit
to household incomes and employment around the world, with
financial market falls having already hit personal wealth, consumer
sentiment is likely to slump in coming months, drastically reducing
any appetite for major purchases such as autos. At the same time,
rising corporate distress is likely to impact fleet buying of
vehicles.
Forthcoming economic data releases:
March 24th: IHS Markit Eurozone Composite, Manufacturing and
Services Flash PMI (March data)
April 7th: IHS Markit European Sector PMI (March data)
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
