With some worst-case scenarios moving frighteningly closer to reality in the eurozone, Europe may already be in recession. GDP growth was anaemic (but still up) in the third quarter in France, Germany and the UK, but forecasts have been cut further. The installation of ‘technocratic’ governments in Italy and Greece and a newly elected Spanish government promising cuts have not given the financial markets what they want. Investors have hoped that Berlin would ease its opposition to the European Central Bank (ECB) playing a more decisive role as ‘lender of last resort’. But the search for a magic bullet–or giant bazooka–to solve the crisis has been futile. Whatever it is, the solution is going to a long-term one. So will its impact be on the car industry. These days, we’re all macroeconomists; even the owner of a few car carrier rigs in Bavaria has worries similar to the technocratic leaders: budget cuts, a eurozone crash, frozen credit, a global downturn, plummeting sales and output–Lehman Brothers redux.

But in most places for the car industry, that has not arrived yet. The European market was flat compared to 2010, with Germany (and German carmakers) up around 10%. The AEB expected end-of-year sales in Russia of 2.55m units, a 30% increase, with 2012 at 2.8m, close to the peak. IHS Automotive reckons European exports will reach nearly 2.5m units for 2011, up around 13%. Senior automotive analyst, Carlos Da Silva, predicted they would slow in 2012 but still rise 4% from a high level. Da Silva expected 2012 sales to decline around 1.5% across Western and Eastern Europe (which includes Russia, Belarus, Turkey, Kazakstan and Uzbekistan), while production is expected to fall around 2.5%. Almost all declines will be in the west, where OEMs will draw down inventory (perhaps as much as 200,000 units even in the last quarter of 2011).

Da Silva thinks that response is a relative silver lining compared to the inventory crisis of the last downturn. “The difference, and advantage, [that OEMs] have today is that they expect 2012 to be slow and so they are able to anticipate and have their stocks at a far better level,” he said. European factory closures– beyond Fiat’s planned shuttering of its Sicily plant–are unlikely in the next 2-3 years, he added. Baby, please don’t go Despite public complaints about low rates and thin margins, in private conversations some logistics providers, mainly from Central and Northern Europe, admit that 2011 was a rather good year. “I don’t think we can really complain,” said one provider serving mainly Germany and Eastern Europe. “Yet.”

This too has echoes of 2008, when up to that autumn LSPs would have also reported good results. Many now expect to feel the crunch in 2012. Indeed, OEM focus on reducing inventory further also means less volume in the supply chain. But the real fear remains a eurozone implosion. Da Silva’s baseline forecast (see tables) accounts for a likely Greek default by February 2012, but assumes the EU and ECB will come up with the firepower to avert a breakup. Italy should be able to “stumble through,” he predicted, with the probability of default 15-20%.

But the odds of a worstcase, breakup scenario have risen sharply; IHS put the risk at 40%. If it were to happen, the impact on sales markets would be “worrisome”– certainly logistics providers would be complaining as loud in private as they do in public. In such a scenario, the country leaving the zone would be most impacted, but Da Silva predicted that remaining countries would face rising interest rates and, at the very least, a severe credit freeze. For exports, the outcomes would be mixed, but ultimately negative as well.

“[A] euro attacked would lose its value versus the dollar so, mechanically, European exports would gain competitiveness,” he said. But the financial fallout would have impacts likely to seriously crimp global demand. Da Silva said that any breakup outcome would be “the worst among bad options”. Few, trained economists or not, would disagree.