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“Our order book is stellar,” PSA Group CEO Carlos Tavares enthused Tuesday as the Peugeot and Citroën parent reported its results for the first half of the year.
Tavares’s enthusiasm was warranted; the French auto giant posted a profit of €595 million ($697 million) for the period. Analysts expected to see €222 million in operating income, but got €517 million. Sure, PSA knows the coronavirus pandemic will shrink the market this year—by a quarter in Europe and by 10% in China, it predicts—but all is not lost.
A similar story is playing out in Germany, where Daimler CEO Ola Kaellenius last week hailed “the first signs of a sales recovery”—the Mercedes-Benz maker expects this year to be profitable overall—and where the Ifo Institute for Economic Research on Tuesday described the auto industry as “one of the biggest winners” in the country’s cautiously optimistic export sector.
“I don’t see a very quick recovery, but the last two to three weeks have been somehow more positive than I expected,” Jürgen Pieper, a senior adviser at Metzler Bank, told Fortune. “The recovery is there—you can see and feel it—but it will take a couple months before we see 2019 levels.”
“I certainly see the market rebounding, but for full-year 2020 I see the market ending the year with a shortfall of about 20%,” said Berlin-based analyst Matthias Schmidt. “That’s better than most people were expecting a couple months ago.”
Some analysts aren’t so optimistic.
Ferdinand Dudenhöffer, who leads automotive analysis at the University of St. Gallen in Switzerland, told Fortune just over four months ago—as the continent’s car factories were shutting down because of the COVID-19 onslaught—that he expected Western Europe’s auto market to take a full decade to recover to 2019 sales levels.
He hasn’t changed his mind on that—indeed, he expects consumer confidence to be whacked by an imminent wave of bankruptcies in the travel sector, plus tax hikes that will be needed to pay off the titanic debts governments are taking on as they bail out businesses and prop up employment. And then there’s the possibility of a second wave of the coronavirus keeping prospective customers out of showrooms.
“We believe the situation will be very difficult in the next half year, and we don’t think [there will be] a real worldwide recovery,” Dudenhöffer said Tuesday. “All we see is it makes sense for carmakers in Europe to reduce capacity. We see job cuts each week.”
There’s speculation that Daimler, for one, may have to make big job cuts this year.
However, the other analysts interviewed for this piece identified several reasons for a less-bleak outlook.
Don’t take the bus
First, Pieper proposed, the pandemic might be pushing people toward private transport. While consumers were previously concerned about the environmental impact of car use, he said, “people realize driving a car could be safer than the alternative use of public transportation.”
Secondly, some governments—such as those in France and Germany—have moved to prop up the auto sector by subsidizing the purchase of electric cars. France has also introduced a scrappage scheme to incentivize drivers of fossil-fuel cars to get rid of them and go electric.
“France was the only market in Europe to rebound in June,” said Schmidt. “One reason was the subsidies offered by the French government…That’s positive for the French [manufacturers] such as PSA. It had a big impact on PSA registrations.”
Schmidt also suggested that the combination of a generally depressed car market and electric-car incentives would benefit European automakers by making it easier for them to meet emissions targets imposed by the EU.
“With French and German governments enthusiastically choosing to support plug-ins with improved generous stimuluses, be it subsidy or fiscal stimuluses, [manufacturers] can now comfortably sit back and watch their fleet average emissions sail silently over the compliance finish line, avoiding what others had predicted would be some form of compliance carmageddon catastrophe,” he said.
The same incentives aren’t there for traditional-car purchases, but, as Schmidt pointed out, manufacturers such as Volkswagen are still trying to stimulate demand by covering the sales tax on certain models, for a limited time.
“We’re going to see a lot more deals,” Schmidt said.
According to Dudenhöffer, European manufacturers’ exposure to China—where more of a demonstrable recovery is underway—will be key.
“The hope is China,” he said. “The next decade will be the decade of China because they do the best job in combating the coronavirus…Daimler and others that sell cars in China—good luck to them…Companies with strong links to China are the lucky guys.”
