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We have arrived at the crucible of the COVID-19 pandemic.
Containment measures are tightening to combat a more severe second
wave of the virus. Simultaneously, the availability of several
highly effective vaccines appears imminent. While not technically
mutually exclusive, these two key developments have very different
implications for the automotive industry. Our baseline outlook is
being squeezed between these two poles.
Policy actions implemented across major automotive markets have
supported growth, however, the future of many of these programs
remains in jeopardy. Successful clinical trials have reinforced IHS
Markit's expectation that effective vaccines will be widely
available to the general population in developed economies by
mid-2021. IHS Markit projects a COVID-19-induced decline in global
real GDP of about 4.5% year on year (y/y) in 2020, with the
sharpest contractions in Europe, India, and the Americas. Despite
rising COVID-19 infections, economic recoveries are now under way
and will lead to global growth of 4.4% y/y in 2021. Light vehicle
demand will continue to pace the economic recovery. In our baseline
scenario, automotive sales grow 9% y/y in 2021, rising from under
75 million this year to almost 82 million in 2021.
Optimistically, the COVID-19 pandemic appears to have boosted
interest in private car ownership. Survey data from IHS Markit
point to COVID-19 increasing demand for private car ownership in
the United States, West Europe, and mainland China as first-time
buyers expressed a need to reduce dependence on shared and public
transportation. Health and safety concerns have elevated vehicle
demand levels. Additionally, vaccine developments support near-term
confidence in the recovery. Labor furlough schemes, income support
programs, and government subsidies have supported a much sharper
recovery in light vehicle demand; program extensions boost demand
through 2021. In this scenario, which we give a 30% probability of
occurrence, global GDP declines only 3.8% y/y in 2020 and rises
sharply, 5.2% y/y, in 2021. Despite deep recessionary forces, the
COVID-19 pandemic creates the unique possibility of consumers
turning to car purchases for protection and mobility. A stronger
economic response in 2021 accelerates the recovery in light vehicle
demand. Global vehicle demand tops 86 million units, a 15.1% y/y
improvement from the 2020 baseline.
Conversely, a rising wave of new COVID-19 cases has resulted in
large markets re-instating containment measures. Not only do these
policies have a direct, short-term impact on automotive sales; they
also create more lasting economic damage resulting in weaker future
growth. High COVID-19 infection rates in the United States, Europe,
and emerging markets such as India and Brazil create the risk of a
global double-dip recession with a second downturn in the global
economy by early 2021. Although this current phase of lockdowns is
expected to be shorter and more flexible than measures implemented
in the early 2020, failure to contain the spread of the virus will
lead to further restrictions. Because of the worsening trajectory
of global COVID-19 infections, we have given this more pessimistic
scenario equal weight (30% probability of occurrence) as our
optimistic outlook. In the pessimistic scenario, global growth
collapses -5.4% y/y in 2020 and the economic recovery stalls in
2021 as GDP recovers only 2.6% y/y. Light vehicle demand recovers
3.7% y/y compared with the 2020 baseline as sales rise to only 77.5
million units in 2021.
The threat of a "no-deal" Brexit has festered alongside the
pandemic and the failure to secure a deal or an extension will
result in drastic separation after 31 December 2020. "No deal" will
have strategic repercussions on the automotive landscape on both
sides of the English Channel. The next round of product investment
across European facilities, particularly those in the UK, remains
in jeopardy as global manufacturers pursue sourcing alternatives to
avoid supply disruptions. Overall, "no-deal" Brexit volume losses
are estimated at 0.75 million units in 2021, or 5 percentage points
of growth. UK sales would suffer the full force of the failure to
agree to a deal. On the other hand, UK production volumes and
long-term sourcing potentially more exposed as "no-deal" conditions
become entrenched. Other European nations, notably Germany and
Turkey, could benefit from a reconfigured production landscape.
Outside the region, countries such as Japan and Mexico would also
benefit from increased trade frictions and, ultimately, Europe
would be a net loser in total light vehicle production. Emissions
regulations and local content requirements will result in higher
vehicle prices across markets.
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May 13
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