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Ukraine War Adds To Auto Industry Gloom As Sales Forecasts Slashed Again - Forbes

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2022 was supposed to herald a return to normality for car sales in Western Europe and consign to history the dark days of 2020 when coronavirus lockdowns caused the market to dive almost 25%.

At the start of the year, industry consultants LMC Automotive was confidently predicting sales would bound ahead by a healthy 8.6%. This was followed by a little nervousness and because of supply chain disruption the forecast was amended to plus 8.3%. But the unexpected invasion of Ukraine saw a more brutal correction to plus 3.6% and now the forecast is for a barely perceptible gain of 0.4% in 2022 to 10.63 million, far from 2019’s pre-covid peak of 14.29 million.

And this is a phenomenon not just confined to Europe.

U.S.-based Auto Forecast Solutions said there is a combination of negative factors to blame for global uncertainty in the auto market. Inflation around the world is being powered by crude oil price increases, among other reasons, and a combination of negatives is firing fear of a recession.

“Where inflation in the U.S. has been surprisingly low for a very long time, this sudden jump has caused many economists to fret of a return to runaway prices. Unless the war in Ukraine spreads to other countries, the chances of a dramatic inflation jump should be low. A recession, however, is an increasing possibility thanks to inflation, war, COVID, semiconductors, and other forces pushing against growth. If that conflict spreads beyond Ukraine’s borders, the chances of recession grow and the chances of it becoming an extended downturn is better as well,” AFS said in a report.

Investment bank UBS has cut its 2022 global auto sales forecast to 83.3 million from the previous expectation of 86.0 million. UBS has also cut its Western Europe sales forecast for 2022 to 12.94 million from the previous goal of 14.15 million, and Europe as a whole to 16.58 million from 18.21. Western Europe includes all the big markets of Germany, Britain, France, Spain and Italy.

UBS said the industry has been supply-constrained, mainly because of chip shortages, resulting in a big order backlog and low dealer stocks. The 2022 estimate cuts reflect supply bottlenecks in Europe, a halt in exports to Russia and the stopping of local production.

“On a global basis, however, we think supply remains the limiting factor to volumes in 2022 thanks to existing backlog and low dealer inventories. For 2023, we factor in a flatter demand curve to reflect a more moderate macro outlook with higher inflation and lower discretionary consumer spending,” UBS said in a report.

Premium/luxury cars and SUVs are likely to outperform mass market sales, while electric vehicles will be relative winners because of stronger political support, (presumably subsidies and city center bans), and the high cost of gasoline and diesel outpacing the rise in electricity prices, UBS said.

LMC Automotive said the start to 2022 in Western Europe has been very disappointing as the automotive industry continues to endure the impact of supply problems and the war in Ukraine made things worse.

“Our forecast has been trimmed since last month as registration statistics (sales) continue to languish in the face of supply bottlenecks, these exacerbated due to the war. We still anticipate selling rates to improve over the course of 2022 but now at a slower rate than forecast last month,” LMC said.

“The war will chip away at underlying demand as well, through higher‐for‐longer inflation and lower real incomes, though our view is that the initial impact on registrations will be felt through a worsening of supply constraints, as, at least for now, demand is still outstripping supply,” according to LMC.

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Ukraine War Adds To Auto Industry Gloom As Sales Forecasts Slashed Again - Forbes
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