Even though the global automotive industry seems to have fallen into a general crisis of trust and confidence—especially on the Volkswagen issue and with emerging markets weathering local turbulence and volatility—Europe and North America continue to surprise with strong growth in sales. China requires a readjustment strategy, while the global top line went down by approximately half a million units when compared to the third quarter release.
At the global level, growth forecast is a mere 2.1% in 2015, while 2016 and 2017 are expected to show a return to a healthier level of 5.1% and 4.7%, respectively, as crisis markets stabilise.
India & China
In India, better consumer sentiment has resulted in increase in sales of light vehicles by 3.6% through September, with lower interest rates expected to spur increases in demand for the remainder of the year. From an assembly standpoint, increases in output are also expected. India continues to evolve as a strategic export hub, providing potential domestic assembly growth and securing the benefits of economies of scale.
China’s stock market turmoil and rising inventory levels have left a financial strain on dealers, ultimately slowing down factory shipments. Restrictions on new vehicle licences have served to limit sales from middle-class buyers who are otherwise eager to buy. The government has introduced a sales tax reduction for passenger vehicles with engines of 1.6 litres or smaller, which is expected to fuel sales. The need for replacement of vehicles that don’t meet national engine displacement regulations should help drive sales. Full year assembly is expected to grow at 4.6%. Long-term growth prospects for China remain strong, and assembly is expected to grow at a 4.9% CAGR between 2014 and 2021.
The primary markets of Indonesia and Thailand have continued to struggle through 2015 with sluggish economic performance. The Philippines and Vietnam, both small markets, showed significant growth thus far in 2015. Light vehicle assembly volumes are expected to grow from 3.9 million units in 2015 to 6.2 million units by 2021. Through September, light vehicle sales in Australia grew by 3.6%, boosted by a strong growth in SUV segment.
But Japan’s total market, through September, declined by 10.2%—attributed to increase in municipal tax for mini passenger cars in Q2-2015 and tax hike in April 2014. As there will be a further sales tax increase from 8% to 10% in April 2017, another sales surge is expected towards the end of 2016 and the first quarter of 2017, with a similar hangover in 2018. Automakers may increase exports from Japan to North America in the near- and mid-term to take advantage of a weaker yen against the US dollar, but the longer-term strategy to localise assembly may not change.
Sales in South Korea were up 9.3% through August, thanks to key new vehicle introductions from domestic automakers and robust growth of export sales.
Sales are hot due to the continuance of near-historic lows in financing rates. Though the Federal Reserve is expected to raise rates in December, 2015 will still be a banner year for the US market. Assembly is on pace to reach new heights as new investments are beginning to break ground, including expanded capacity at existing facilities as well as new plants, which should result in a 2.1% growth over 2014.
As Brazil continues to struggle through a recession, both light vehicle sales and assembly experienced the steepest decline since 1998. The forecast for sales is expected to deteriorate by as much as 24% in 2015 and light vehicle assembly is expected to deteriorate by 22%. Auto sector in Argentina has suffered contraction since half of light vehicles produced there are exported to Brazil. Sales and assembly are expected to decrease by 3% and 10% for the year.
Europe continues on its recovery journey—generally low credit and financing rates, low fuel prices, improving employment expectations and onslaught of new and attractive products.
Backed by LCV market growth of 9.1%, light vehicle sales are expected at 15.8 million units in 2015, and 16.5 million in 2016, driven by further growth of 4.1% of the car sector, and 5.9% of the LCV segment. EU assembly is expected to grow by 7.3% to 18 million light vehicles in 2015.
The author is partner, PW, and an auto expert