New report warns that end of scrappage schemes will herald new low
3 July 2009

It will take at least five years before European car sales return to pre-recession levels, according to a new report. With fewer and smaller cars being sold, the car industry faces a liquidity crisis that will result in a 70 billion Euros (£60 billion) being lost across the sector by the end of 2010.

Scrappage boosts Euro sales

Considerable overcapacity and the high levels of debt built up by manufacturers means the industry is set for fierce consolidation, according to AlixPartners, the turnaround specialists behind the restructuring of General Motors in the US. The car industry is being particularly hindered by the downturn because demand for new models in the early part of the decade was high, fuelled by the availability of cheap credit.

The report says Europe will take until 2014 to return to the 16 million car sales level of 2007, and that is dependant on favourable economic circumstances.

The report also warns that government incentive schemes – which are offering consumers discounts on new vehicles if they scrap an old model – threaten to cause a damaging oversaturation of the market.

Stefano Aversa, a AlixPartners managing director, said: "The real crisis for the automotive industry has yet to arrive – when governmental incentive programs expire, that will truly be 'zero hour'."

The report suggests that manufacturers will realise a loss of 1800 Euros (£1500) on every vehicle sold this year.

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