The collapse of the car market: the experts' predictions are disappointing

The crisis state of the global car market was obvious at the beginning of the year. However, the events of recent weeks, associated with the global spread of COVID-19 disease, can become an additional factor in a massive collapse, which the market has not experienced for many years. The last serious collapse occurred during the global crisis of 2008, when the sales of passenger cars fell by almost 9%.

This time, as the experts of the “LMC Automotive” consulting company predict, a negative scenario could lead to a 23% market collapse over the current year.

The negative dynamics in the car market was already visible at the beginning of 2020, when no one thought about the pandemic, oil prices, volatility of national currencies and other things. At the end of last year, it became clear that the global car market contracted by 4.4%. It was a record for the recent years.

In Russia, the situation looked a little better. Nikita Bykov, CEO of “Automama” company, notes that over the past 5 years, the total number of car dealers has decreased by more than 15%.

“The previous crisis swept away the weak dealers from the market,” Bykov says, “but financially competent remained, so no more than 10% of dealers will leave the market in the coming year”

However, the fact that last time many dealers survived due to the revenues from the service, will not help this time, since during the pandemic period, these revenues will no longer exist.

“First of all,” confirms Sergey Zemelkin, CEO of the “Zalogoff.com” pawnshop selection service, “small dealers will suffer, while large multi-brand players have much higher chances to survive the collapse of the car market”

Many potential buyers, even those who have means, will simply postpone the purchase of the car “until better times”. In the future, the lack of supplies, a decrease in the number of available cars and a reduction in model lines will begin to affect the market.

What caused the drop in sales and demand in the global industry? The analysts noted that a major role was played by the trade war that the United States and China initiated over the past year. In addition, the introduction of new environmental standards in a number of countries has become a significant factor. Strengthening the environmental standards in recent years has reduced the massive demand for gasoline and diesel vehicles. The experts point at the growth of sales of electric bikes and the development of car sharing services.

Sergei Zemelkin makes an “optimistic” forecast and states that the current coronavirus pandemic may halt the trend for the development of car sharing. Thus, this will support the sale of cars in individual ownership in the longer term.

However, the forecasts of most experts for the nearest future are very far from optimism.

“The main problems for the car industry,” says Nikita Bykov, “are layoffs and piecework wage system with minimal salaries and gray bonuses”

Two to three times reduction in income seems quite logical in the current situation, if you do not take into account the possible measures on the part of the Government. “The state program on car loans and other government measures to support business and the public can support the market,” the expert believes.

In Europe, the beginning of the year was marked by an economic downturn, caused by the Brexit problem. The rates of leading auto giants such as Ford, Volkswagen and others have dropped. Nissan showed a drop in sales in Europe by almost 25%. In Italy, sales fell by 7.5% and in Spain by 8%. The new standards, needed to determine fuel consumption, have forced several manufacturers to stop supplying non-certified models. It seemed then that disaster was inevitable. But it could be even worse.

In February, the sales of new cars fell by almost 20%. And if in the USA one could still see a slight increase of 8.3%, then the Celestial market collapsed by almost 80%. The common paralysis, caused by the epidemic, has stopped the sales. According to the analysts, about two-thirds of this drop in global sales is accounted for precisely by China, as well as the United States and the EU countries. Taking into account that almost a third of all transport, produced in the world, has recently been consumed by the PRC market, we can say that the market decline of 44% in the first two months of this year had a negative impact on the entire global market. And although China gradually recovering after the epidemic and restarting stopped production, the negative impact on the global GDP is inevitable.

The situation does not look much better in Russia. According to the forecast of “Automama” CEO, if, according to the results of 2020, the decline in sales of new cars will be no more than 20-25%, then the market will be lucky. Introduced measures to limit trade may last until the end of April or even May. He notes that customer traffic on calls from bulletin boards and from the Internet (the main one for classic dealers) was stable until the restrictions on retail trade were introduced.

Now, the car sales are practically reduced to zero. Buyers can no longer buy a car through promotional offices in the shopping centers.

Even after the trade starts again, the decline in sales will be very significant. According to Nikita Bykov, a decline of 30-50% is quite possible as a result of the simultaneous influence of several factors:

• the prices increase, resulting from the devaluation of the national currency;

• reduction in population savings during a pandemic;

• increase in the number of unemployed;

• growth in delinquencies on loans and reduction in the issuance of new car loans by banks.

In this situation, many global car manufacturers are seriously thinking about re-equipping their enterprises to produce medical equipment, which is so necessary in the situation of combating the consequences of a pandemic. Ford and GM factories in the United States have already begun production of ventilation devices. A similar situation is developing at enterprises in other countries. The car producers are likely to close assembly plants after the pandemic, and individual brands may simply stop existing.

“In this situation,” believes expert Nikita Bykov, “there are more favorable prospects for those dealers who sell used cars. The share of lending in the used car market is about 10-15%, and most purchases are made in cash. ”

The conclusion, made by our interlocutor, is that if there is not enough money for purchasing the new cars, then the demand will be shifting to the used cars. Thus, the landscape of the car market may change beyond recognition.