European car sales show first signs of recovery

European car sales showed first signs of a tepid recovery in May as showrooms reopened after a two-month shutdown because of the coronavirus pandemic.

New auto registrations across the region fell 57% year-over-year, the European Automobile Manufacturers Association said to Bloomberg on Tuesday. While that's the worst May since the group started tracking the data in 1990, it's an improvement over the 78% plunge in April.

The exact shape of a potential recovery is still unclear as carmakers from Volkswagen AG to Fiat Chrysler Automobiles NV prepare to announce results for what likely will be a devastating second quarter. In the US, Ford Motor Co forecast a $5 billion loss for the three months through June.

The industry is hoping that consumers will drive an improvement this summer by turning to cars for their holidays instead of flying to far-away destinations. US customers bought sport utility vehicles and trucks in droves in May, spurring a sales rebound.

Another positive signal is coming from China, where car sales rose for the first time in almost a year last month. The region has become a focus for European automakers, who are hoping better business there will make up for muted registrations at home.

The Stoxx 600 Automotive & Parts index rose as much as 1% in early trading on Wednesday.

Sales have dropped 43% during the first five months of the year, in a sign that a rebound will take some time. European car sales are forecast to decline by as much as a fifth in 2020, according to Bloomberg Intelligence's Michael Dean.

All European countries showed double-digit percentage drops last month, though some did better than others. Germany's registrations declined by about half, while Spain's fell almost 73%.

High inventories

Meanwhile, companies are cutting costs wherever possible. France's Renault SA announced in May it would reduce staff levels worldwide, while German automotive supplier ZF Friedrichshafen AG said it plans to cut as many as 15,000 positions. In total, Europe's automotive industry has announced more than 50,000 job cuts since the start of the pandemic, according to data compiled by Bloomberg.

Automakers and dealers still have high inventories. With production ramping up again, surplus cars are threatening to pile up if sales don't recover quickly, which could lead to even more job cuts as companies try to find a way to afford the glut.

European governments are trying to prop up demand with stimulus programs, though not all are targeted directly at the automotive industry.

Germany last week unveiled a 130 billion-euro ($147 billion) package focused on a value-added tax reduction and electric car subsidies, leaving out broader car-buying incentives demanded by the industry. Spain's government, by contrast, this week announced a 3.75 billion-euro program specifically for the automotive industry.