PARIS -- The biggest and strongest automakers, or those whose vehicles have high average selling prices, will best emerge from the European economic crisis, Morgan Stanley analyst Stuart Pearson said.
Investors have picked Volkswagen Group and BMW as the winners in a European automotive market that will continue to decline, Pearson said last week at the Automotive News Europe Congress here.
VW will benefit from its healthy balance sheet and its modular platform strategy that is enabling the group to roll out new models across its brands.
Asked whether VW eventually may become too large and complex to manage, Pearson said that may happen in the long term but for the next five to 10 years VW will continue building on its success.
VW Group's Audi brand will overtake BMW to become the global No. 1 luxury brand by unit sales, Pearson said. This is because of Audi's advantage in China and because it is better positioned in small- and medium-sized cars for which consumer demand is increasing.
But BMW is well positioned for growth and is targeting profitability above volume growth, he said.
Morgan Stanley sees signs of a rebound in consumer confidence in Europe. The company expects the European market to decline by 4 percent this year compared with its previous forecast of 6 percent.
Annual new-car sales in Europe likely will grow to 14 million to 15 million in the midterm from about 11 million now but will not reach the 16 million to 17 million levels of before the global financial crisis hit in 2007.
One key reason is a structural change that means fewer people are driving, said Pearson, who heads Morgan Stanley's automotive team in London.
European mass-market automakers are collectively losing 4 billion to 5 billion euros, or about $5.31 billion to $6.64 billion at current exchange rates, a year in Europe. VW and Hyundai-Kia are the only volume carmakers that are profitable in the region, according to Morgan Stanley.
Volume automakers are still building far too many vehicles for the market demand. To cover capital costs, mass-market automakers should cut annual capacity by 4 million to 5 million units. Just to reach breakeven, the companies need to reduce capacity by 1.5 million to 2 million units a year, Pearson said.