‘Corona will have 10-year impact on French car industry’
According to consulting firm AlixPartners, the coronavirus hits the automotive industry in France particularly hard. It does not expect a return to growth before 2030. Even before the pandemic, the firm warned about a crisis in the industry.
After a peak in sales of 2,7 million vehicles in 2019, these will drop to 1,8 million in 2020 in France. They will reach a ‘normal’ level of 2,4 million units in 2022. France will not recover at the same pace as Europe, where sales are expected to grow by 7,7% per year from 2020 to 2025.
According to AlixPartners’ forecasts, the market will be sustained by sales of SUVs, mostly electrified. They are expected to represent 43% of the market in 2030, compared to 21% in 2015.
Covid-19 also causes the automotive production in France to plunge to 1,5 million units (2,2 million in 2019). It will stabilize at 1,8 million per year by 2027. The production of diesel and gasoline vehicles will then be transferred outside France. The entire French automotive industry will focus on electric and hybrid vehicles.
On a global scale, AlixPartners estimates that the crisis will result in the loss of 19 million vehicle sales in 2020. And even by 40 million if we look ahead to 2022. China, the first country affected by the crisis, is expected to recover the fastest. “This country will be the engine of the vehicle in the world,” Petizon sums up.
The drop in sales after Covid-19 comes with a collapse in the level of Return on Capital Employed (ROCE) in the industry. “In 2020, ROCE will be negative or close to zero,” says Petizon. “All carmakers should see a total of 220 billion fewer profits between 2020 and 2022.”
As a result, manufacturers and suppliers resort to debt. They committed to $52 billion in lines of credit, and $20 billion in long-term debt between mid-March and the end of May by US and European manufacturers because of Covid-19.
Manufacturers could reverse their plans to invest in electricity and spending on autonomous vehicles.
Manufacturers must also adapt to the CO2 reduction targets set by the European Union. Fines for non-compliance could reach at least $14 billion in 2021. The decline in sales of diesel and the increase in sales of SUVs would explain the poor performance of some of them.
“Perhaps there will be some time limits for manufacturers,” suggests Petizon. “This major crisis is having an impact three times greater than in 2009. It could encourage mergers and acquisitions between manufacturers and between suppliers to share their costs.”