Virus adds another bump to car sector

Eslowed urope’s car production. industry In is on Fiat a’rocky s Italian road. car The plants, Covid19 for outbreak has disrupted supply chains and instance, the need to separate workers has led to partstaffed lines. And ahead lies slumping demand.

Italian car sales fell 9% in February, but worse is to come. This month’s declines could outstrip China’s 79% drop in February, its largest monthly decline. Even before the outbreak, sales were weak and companies under pressure over new emissions standards. New-vehicle registrations in Europe reached prerecession levels in 2018 but have been falling since.

Optimists hope for a V-shaped recovery. Cars, after all, are not perishable goods. Many purchases will simply be deferred. But a severe downturn would make the trajectory U-shaped. The financial crisis illustrates the threat. In early 2009, for example, Britain’s vehicle production was cut by more than half. Markets are signalling a serious slump. The Stoxx Europe 600 automobiles & parts index has fallen more than a third over the past week.

Ferrari, FCA and BMW held up best. Companies with high costs and gearing have been worst hit. The share prices of France’s Renault and the UK’s Aston Martin have halved in weeks. The French government has promised support. Germany is offering tax deferral and unlimited loans to stricken businesses. States might intervene in other ways. Cash-for-clunkers scrappage schemes were common after the financial crisis.

The problem for the car industry is that it was under intense pressure before the coronavirus hit. The latest woes compound the difficulties of carmakers whose core product — petrol cars — is becoming obsolete. Shares are already trading on the skinniest of multiples. With political support, they will get through the crisis. But investors will be in for the bumpiest of rides. /London, March 16

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