Car manufacturers in the Midlands have been warned that the end of scrappage schemes and over-capacity in the industry will leave them facing a “year of uncertainty”.

The latest Autofacts forecast by PricewaterhouseCoopers says the automotive sector faces an uphill climb as scrappage initiatives disappear, leaving “significant, residual over-capacity.”

With predictions of a further dip in demand for light vehicles in the EU in 2010, PWC says it is vital that the sector stays focused on the long term and “pursues differentiators” for the new automotive decade.

The PWC report says: “At the start of 2009, many feared a total automotive meltdown as global economies stalled and the financial system faced collapse.

“However, various forms of government intervention engineered a softer landing than was initially expected, given the considerable economic turbulence. In the case of China, the auto sector not only averted crisis, but posted extraordinary growth.

“For manufacturers in the UK and the rest of Europe, scrappage schemes led to a better outcome for the sector than expected during 2009. However, most of these schemes have already closed and they have left some significant over-capacity in the marketplace.”

According to PwC’s Autofacts, an estimated 6.5 million units of excess capacity exists in the EU alone, suggesting that the region’s challenge to competitively align supply and demand looks set to continue.

Demand for light vehicles is expected to dip by 900,000 units in 2010, driven by a large decline in German car demand. Despite this contraction, Autofacts forecasts that light vehicle assembly in 2010 will be on a par with last year.

Chris Hibbs, partner and manufacturing sector expert at PwC in the Midlands, said: “Over-capacity remains a significant issue for auto sector manufacturers in the Midlands and elsewhere in the EU and points to uncertainty about the sector’s ability to retain its share of the global marketplace.

“By contrast, manufacturers in North America are starting 2010 in a stronger position, having reduced some over-capacity and completed some dramatic restructuring at every level of the value chain, leaving the industry more lean and agile to compete in the future.

“Car makers in the Midlands need to stay focused on the future and adapt to the shifting marketplace.

“In particular, they need to take steps to position themselves for growth by concentrating on future technologies, enhancing regional coverage and addressing issues of global scale. Increased M&A activity is expected as a result.

“Incentives are gradually being withdrawn or scaled back and manufacturers in different parts of the world are facing very different legacies. For manufacturers in the EU, significant challenges remain as a result of the residual over capacity and competing will require considerable long term focus.”