error: This content is protected, please contact Matt@bestsellingcarsblog.com if you would like to license for reuse.
skip to Main Content

COVID-19: World economy and car sales must brace for U-shaped recovery, not V

A V-shaped recovery for worldwide new car sales is fast becoming untenable.

During this difficult and volatile period, we at BSCB will refrain from publishing constantly changing short-term forecasts which only add to the ton of alarmist updates we are all getting on an hourly basis. The spread of the COVID-19 virus, let alone the economy itself and new car sales to an even greater extent, currently remains steadfastly unpredictable. Even economies that seem to have the virus under control are not shielded from relapses as we have seen in the last few days in Hong Kong. It is however important as an industry to be aware of robust predictions of macroeconomic change. Today’s statement by the the Organisation for Economic Co-operation and Development (OECD) strikes us as the first realistic worldwide economic view so far.

In an article published by the BBC, Angel Gurría, OECD secretary general, says the COVID-19-triggered economic shock is already bigger than the financial crisis of 2008, and a recent warning that a serious outbreak could halve global growth to 1.5% already looks too optimistic. Many of the world’s biggest economies will fall into recession in the coming months (defined as two consecutive quarters of economic decline), and we at BSCB believe this in turns means the world economy is likely to post negative growth in 2020, and will take a while to perk back up.

More symbolically, just weeks ago policymakers from the G20 club of rich nations believed the recovery would take a ‘V’ shape – with a short, sharp drop in economic activity followed swiftly by a rebound in growth. Mr Gurría disagrees: “Right now we know it’s not going to be a ‘V’. It’s going to be more in the best of cases like a ‘U’ with a long trench in the bottom before it gets to the recovery period. We can avoid it looking like an ‘L’, if we take the right decisions today.” According to the BBC, the OECD is calling for a four-pronged plan to deal with the outbreak, including free virus testing, better equipment for doctors and nurses, cash transfers to workers including the self-employed and tax payment holidays for businesses – resembling the Marshall Plan which helped to pay for the reconstruction of Europe after WWII.

What does this mean for worldwide car sales?

It’s too early to venture any kind of realistic forecast for 2020. A lot will depend on how long it takes for each nation to wrestle COVID-19 to the ground and remain there. This will in turn inform the length of lockdowns – the long trench in the bottom of the U mentioned above by Mr Gurría – and the date at which car dealerships are allowed to resume activity, pending they have vehicles to sell. Every country will be hit at a different degree, with no one-size-fits-all model. Then the issue of production localisation and parts shortage comes into the picture, as well as the level of support by each government to their local manufacturers.

The more COVID-19 spreads around the world, the more it becomes apparent in retrospect that China may have managed a particularly fast turnaround, and could be the only new car market bound for somewhat of a V-shaped recovery this year. Not only because local infections have now stopped, but also – and this will be an increasing factor as more countries are ready to resume production – because China operates in an almost perfect silo, with its local market by and large only fuelled by local production – bar a million annual imports that are counted separately anyway. Now that China has resumed car production, the now-global pandemic is likely to only have a measured impact on its domestic market. That’s not the case for the rest of the world automotive market, a lot more interconnected.

Among the countries most affected by COVID-19, the last few days have also shown South Korea (2% increase over the past 48 hours), Iran (+12%) and potentially Italy (+19%) slow down their infection rate which could be associated with a shorter lockdown and economic disruption, keeping in mind one of the biggest challenges will be to decide when is safe enough to resume activity. In contrast the US (+72%), Canada (+63%), Australia (+57%), France (+41%), Spain (+38%), the UK (+33%) and Germany (+31%) remain far from having “flattened the curve” of infections and could suffer the most economically in the coming months.

This Post Has 3 Comments
  1. Virologists and immunologists are not aligned, and that’s understandable: In this modern age, C-19 is without precedent. U shape likely, but as soon as the virus spread appears contained, sucker rally’s – nicer, relief rally’s on the equity markets will be abound. Big question for me is the USA. A nation with a lot of short fused. self righteous folks. The run on guns is indicative……

Leave a Reply

Back To Top