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By Lee Wild | Mon, 24th November 2014 - 16:42
Well, Europe appears to be on track. Despite well-documented economic problems and absence of any real growth, over 1.07 million cars were sold in the region last month, according to the European Automobile Manufacturers Association. And it would have been more but for Daimler's overhaul of the Smart car and GM’s withdrawal of the Chevrolet brand from Europe. A 26% surge in Spain, 14% jump in the UK and 9% growth in Italy were the key drivers, and the Spanish have extended their successful cash-for-clunkers scheme until the end of this year. Sales so far this year are up 6.1%.
But in France, Europe's third-largest car market, monthly sales fell almost 4% and home brands Peugeot and Citroen seriously lagged the market, up 1.8% and 0.4% respectively.
"We're in a context where all the indicators are pointing to the postponement of purchasing, falling confidence and deflation risk," François Roudier, a spokesperson for the country's CCFA industry association, said earlier this month. "This is the perfect illustration."
Of course, we've come a long way since 2012 when over one million fewer cars were sold in Europe than the year before, and when demand sank to an 18-year low. And, while recovery growth seen in recent years is unlikely to be repeated in 2015, the outlook remains largely positive.
Certainly, that's the conclusion at Barclays. Global light vehicle growth will remain modest, the bank's analysts say, with the US plateaued and very slow recovery in Europe, though with continued solid growth in China. Loosening credit standards over the coming years can continue to aid US markets, while pricing in the used vehicle market may continue to erode in the coming years.
Attendees at Barclays annual Global Automotive Conference held in New York last week were largely in agreement. Over half think that US light vehicle sales will be 16.8-17.2 million next year, up 1-2%.
"With regard to Europe, while the audience didn’t seem overly negative on prospects for 2015, sentiment unsurprisingly appeared muted, with the audience largely expecting very modest growth, similar to our outlook for 2015 Europe production of +2% y/y. Moreover, the majority of the audience was skeptical that a sharp recovery will ever occur.
"Finally, in spite of fears by some that the China growth story has ended, the majority of the audience expected China production to grow at a CAGR of 6-7% over the next three years - a solid pace, but one that is admittedly below our bullish estimate of ~10%."
Clearly any improvement will be a boon to UK-based automotive suppliers. Many have already been major beneficiaries. GKN (GKN) makes drive shafts and other parts for pretty much every motor manufacturer, including the lucrative luxury end and all-wheel drive (AWD) models. Senior (SNR) supplies the tubes, hoses and flexible connectors, Bodycote (BOY) the heat treatment services, and Alent's (ALNT) electronics operate car locks and airbags.
But while most suppliers are highly geared to any uptick in car production, few rely upon it. Almost all make more money elsewhere, typically from the less cyclical aerospace industry. Interestingly, a de-rating over the past few months has left many industry names, particularly GKN, on modest earnings multiples.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.