European automotive industry hit hard by coronavirus

The European automotive sector has been in the eye of the storm since the start of 2020. Last year was already difficult, with sales and production down in Europe. Indeed, the uncertainties linked to the trade war, Brexit and the threats of American tariffs, the drop in automobile sales in China and the heavy investments made in the electric car segment as well as the new European CO2 emission standards lowered production and sales growth (sales at EU level increased by just 1.2% in 2019 compared with 2018, according to the European Automobile Manufacturers’ Association – EAMA). In this already difficult context, analysts did not expect 2020 to be a vintage year, and that was without counting on the covid-19 epidemic, which suddenly delivered the fatal blow that no one was expecting anytime soon in an already struggling sector in Europe. The various measures taken in the affected countries (lockdown, the closure of stores and borders, etc.) marked a halt in the retail and tourism sectors but also impeded manufacturing activities in Europe and the rest of the world. The covid-19 crisis is unique because it did not start with a drop in demand or a drop in production. There are three fronts to tackle at the same time: a collapse in demand, a disruption in production and a disruption in the supply chain.

Collapse in demand

The closure of dealership stores as well as lockdown measures have hampered the sales of passenger cars. The most recent figures from the EAMA show that sales of passenger vehicles in the EU (27, excl. Malta) declined by 79% in April 2020 compared with April 2019 (in March 2020 the drop was about 52%), and by 39% in the first four months of 2020 in comparison with the same period in 2019 (27% reduction in the first quarter of 2020 compared with the first quarter of 2019). The three countries with the largest drop in sales in April 2020 compared to April 2019 were Italy, the UK and Spain (-97.6%, -97.3% and -96.5%, respectively). In the first four months they were Italy, Spain and France (-50.7%, -48.9%, -48%, respectively). While the figures for March 2020 were already very bad, April’s figures were worse. The easing of lockdown measures in the various European states should lead to production resuming on a small scale (plants are opening little by little, but still not operating at full capacity) and sales starting to pick up. The pre-covid-19 sales level should be restored within a few years, according to various sources, although the sector is not immune to a second wave, which would further delay the return to normal.

Production and supply chain disruptions

The disruption in production is also due to the containment measures such as social distancing and border closures. All production throughout the supply chain is affected. This started with China, the first country to impose a lockdown, preventing local producers from exporting their products to Europe. It kept European producers in suspense given their dependence on China for some spare parts. Later the measures taken in Europe further impeded the local plants. The problem rippled through the whole supply chain, eventually impacting original equipment manufacturers (OEMs), which make everything from radios to glass and brakes. Despite the drop in commodity prices, their production costs have increased, putting their profitability under further pressure (given that 2019 was not a good year). The longer this situation lasts, the more pressure on OEMs will increase, even if they can pass this cost increase on to their customers (car manufacturers). While car producers should have enough liquidity to cope with the collapse in demand, that is not the case for OEMs. Bankruptcies are expected to increase in the sector. The problem is that a collapse of one OEM could result in a delay in the reopening of some car manufacturing plants given the time needed to find another one, test its products and integrate them into the supply chain.

The Manufacturing PMI for the eurozone does not bode well for the short-term outlook. It stands at 33.4 for April 2020, far below 50 (contraction zone) – its lowest level ever registered. It is also worth noting that this is the biggest monthly drop ever recorded.


The coronavirus outbreak is hurting the European Union badly. Economic activity is under severe pressure as the economy is hit by lockdown measures as well as by supply chain disruption and a contraction in external demand. The automobile sector, which was already struggling last year, was not immune to the sudden and severe shock. Support measures for the sector – such as tax breaks, subsidies and scrappage schemes –are currently being discussed at national and European level. However, compared to 2009, when the sector benefited from generous support measures, its reputation has been hammered by dieselgate and heightened environmental awareness. Moreover, the European industry is much more reliant on export and imports than in 2009, diluting the positive effect of any kind of help. It will take time before we can return to production levels similar to the pre-covid-19 period. The risk for European automotive manufacturers cannot be underestimated, but greater still – although less visible – is the risk of OEMs going bankrupt and further disrupting the tightly integrated European automotive supply chain. 

Analyst: Matthieu Depreter –