Arthur Maher, Director of Research

21 January 2021

Are inventories the European market’s black hole?

While Light Vehicle inventory data are not publicly available in Europe, recent events have highlighted that stock movements are a critical component in understanding the likely evolution of build volumes.

In the aftermath of the Lehman Brothers crash in 2008, OEMs were immediately faced with collapsing market volumes. They responded by slashing output and made concerted efforts to reduce unplanned or unrequired inventories. But the scale of the crisis was such that European automakers could not act quickly enough. So much so, in fact, that by the close of 2008, they found themselves sitting on circa one million Light Vehicles – all of which were stuck in the supply chain and surplus to requirements.

More recently, with the outbreak of a global pandemic and the ensuing lockdowns, European OEMs saw days’ supply rocket to more than 100 days in the first quarter of 2020. Ideally, days’ supply should sit at around 60 days, meaning that the region was essentially overstocked by 40 days.

Moving into the second quarter of last year, however, European inventories plunged by one million units, to a supply of 60 days, thus restoring the status quo. This echoed the pattern seen in the wake of the Lehman Brothers collapse.

For the final quarter of 2020, we forecast European days’ supply at 67 days, but there is a risk that this estimate could prove to be overly optimistic, in light of the lockdown measures introduced across the region at the tail end of last year.

Indeed, maintaining firm inventory control emerged as a principal objective for every OEM across the sector.

It is worth noting that, in recent decades, we have seen exogenous shocks increase in both frequency and severity, as highlighted by the oil spikes of the 1970s, the collapse of the Soviet Union, the financial crisis of 2007-2008, and now the COVID-19 pandemic. Such shocks inevitably disrupt budget plans and inventory holdings throughout the industry.

As the table above illustrates, we have identified and filled this black hole. So, it is worth checking beneath the surface to pinpoint those OEMs that are under/overstocked.