The ghost of recession.
We live in difficult times in all aspects, fundamentally in the economic one. Living is much more expensive than a year ago. And the automotive sector is no stranger to the current context. The European car industry could be doomed to collapse due to high inflation.
According to Automotive News, rising interest rates and inflation are starting to weigh on demand for new cars, while higher costs for raw materials, energy and logistics are expected to weigh on profits.
Headwinds from the European economy are reaching the region’s auto industry. For example, Volkswagen expects profits this year to be lower, as rising interest rates and inflation are reducing demand for cars.
On the other hand, BMW warned last week that orders for new vehicles are falling considerably, especially in the old continent.
The tire brand Continental confirmed that it will have to assume 3.5 billion additional costs due to the increase in the cost of raw materials, energy and logistics. The company stressed that the price of shipping containers abroad has increased eightfold in some cases.
The specter of recession threatens the European car industry
The specter of recession hangs over Europe and, specifically, the automobile industry. The German economy (Europe’s largest) stagnated in the second quarter, due to price increases, supply shortages and the threat of energy rationing in case Russia cut off gas flows.
Economists consider that a recession is almost inevitable in the second half of the year. The UK economy contracted in the second quarter and the Bank of England has announced that the country may enter a recession similar to the one it suffered in the 1990s in the fourth quarter.
Automakers have managed to overcome these frictions for quite some time. Despite the fact that vehicle sales have plummeted in Europe over the last year, brands such as Mercedes, Volkswagen and BMW have increased their profits, due to the fact that they have focused their production on models with high added value and, therefore, a high profit margin. Benefits.
On the other hand, company accounts and fleet management arms benefited as the chip crunch strengthened demand for used cars and underpinned prices.
Some manufacturers, such as Stellantis and Mercedes, remain bullish and may maintain strong profits in the second half of the year.
But it is becoming less clear how long manufacturers will be able to deal with the economy’s underlying problems. Many companies are already preparing for a particularly harsh winter, due to the worsening energy crisis in the region.