Blog: Dave LeggettMixed developments in global vehicle markets

Dave Leggett | 4 August 2015

'Make hay while the sun shines' is an old saying that underlines the importance of making the most of clement conditions while you can, for tomorrow, weather conditions may not be so favourable. It's perhaps something for the auto industry to reflect upon.

A look around the world shows one or two unfavourable developments in markets lately, at least in terms of risks to the short-term outlook.

The US market remains a broadly positive story, of course. The finalised July numbers show another good month in terms of overall market volume. The latest GDP data also underlines the relatively strong performance of the US economy. However, the light vehicle market is now topping out; based on historical evidence, it can't go much over 17m units in a typical year and has been running at a SAAR at that level. Further significant overall demand growth will be harder to come by in 2016.

Elsewhere, developments are decidedly mixed. South America looks weak with Brazil's car market 20% down this year. Europe's market is faced with economic uncertainties, the weak car market recovery as fragile as ever, even if the market recovery has much further to run to get back to 'normal' (in practice, read 'new normal', which will be lower than before in some countries). The trading environment is very, very tough across the region. Russia still looks pretty bleak, even if the bottom is in sight.

In China, concerns remain over the current economic slowdown and dramatic reverses in local stock market prices. Recent analysis suggests that demand conditions may be rather better in the lower tier cities, with the tier 1 and tier 2 cities (where restrictions on car purchases are concentrated) seeing much of the downward demand adjustment, in the short-run. However, the stock market developments threaten a broader adjustment if confidence - already knocked - really dissipates (China's stock markets are dominated by individual, rather than institutional investors, and those individuals have had a shock). It's something to keep an eye on.

Ford CEO Mark Fields' comments, last week, on current negative pricing pressures in China echo what many OEMs have been saying lately (although the long-term positive market prognosis remains largely unchanged).

US: Negative pricing pressure in China continuing - Ford's Fields

And, in the US and UK, there is talk of interest rates going up, both countries' central banks well aware of the message that upward adjustment will send and consequences for exchange rates. One unspoken point is that interest rates need to move up as soon as economies allow at this stage in the global economic cycle to create wiggle room as an economic lever in the future (as used, for example, in 2008). Providing that happens, they can be cut again when the next recession arrives in earnest...

So, the global vehicle market is at a high spot so far this year. Car companies and suppliers need to consider their global market geography and where things are heading, a little like sailors looking for the best winds.

UK: Global light vehicle market flat in June




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