The latest data from LMC Automotive shows that the global light vehicle market, on a seasonally adjusted annualised basis, was running at over 88m units a year in October, a record level. The market is edging to new records, despite economic concerns globally.
LMC forecasts that the world’s vehicle market this year is heading for 86.4m units, 2.5% ahead of 2013.
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What’s driving the global vehicle market up? Well, China is still growing, the US remains on its firm recovery track and Western Europe’s car market is growing, albeit off a low base.
Europe provides cause for concern
LMC Analyst Pete Kelly says the picture of growth needs to be seen with a few caveats. “We know that concerns remain in the eurozone over the underlying strength of the economic recovery,” he points out. “So, yes, the market is up, but that’s against a low base for comparison and it remains well down on pre-2008 levels. Many national car markets will remain below where they were for some time to come due to structural economic problems impacting consumer spending and car demand. And while demand stays as low as it is, competitive conditions will remain very tough for the OEMs in Europe.”
Kelly notes that the European Central Bank (ECB) remains worried about the dangers of region-wide price deflation and the possibility of the kind of long-term economic stagnation that has been a feature of the Japanese economy in recent decades. “The recent acceleration in the fall of the price of oil will have set alarm bells ringing,” Kelly maintains. “Yes, there is a transfer of income to consumers in oil-consuming countries and that’s potentially a significant economic positive, but if prices start to fall too quickly spending on consumer durables and big-ticket items could start to seize up. We have already seen consumer price inflation dipping into negative territory in France and Spain.”
Economic gloom may be growing again in Western Europe, but vehicle markets produced arelatively solid result in October with light vehicle sales up by almost 6%, more than offsetting weakness in Central and Eastern Europe. UK, Spanish and German markets were strongest while concerns remain in France.
Light vehicle sales were down by 4.5% in October in Central and Eastern Europe. The year-on-year contraction in the region for October was reduced from the previous month (which was down 14% in September) as a scrappage scheme in Russia started to boost sales, though this effect may be short lived as the outlook in Russia remains poor in light of continued currency depreciation and falling oil prices. The selling rate also continued to pick up in Turkey after a low point earlier in the year.
US recovery on track
In the US, while there was no repeat of the soaring September result, the 16.4m units/year selling rate for October represented ongoing strength. Light truck demand continued to hold up well with year-to-date truck sales up by 10%. Car demand is marginally ahead of the same period last year on both month (2%) and year-to-date (0.6%) measures. “The US story remains one of recovery based on reasonably positive economic fundamentals, good availability of credit and a still favourable replacement cycle,” Kelly says.
New vehicle sales in the US are expected to reach 16.4m this year, up from 15.6m last year and the industry is predicting sales of up to 17m next year, a level that is commensurate with pre-crisis norms.
Canadian demand also remained remarkably strong in October, with a selling rate of over 1.9m units a year, making a new full-year record all but certain for 2014.
China market up, but slowdown coming
LMC says that preliminary data indicates that the selling rate in China surged to a robust 24.4m units a year in October, up nearly 6% from September. After hovering around 22-23m units a year rate in the first nine months of this year, deliveries to dealerships appear to have gained momentum, perhaps because automakers are trying to achieve their year-end targets, LMC says.
On a year-on-year basis, passenger vehicle sales increased by nearly 10% in October, while light commercial vehicle sales are estimated to have declined by nearly 5%, being undermined by uncertainty over the looming China IV emissions standard, as well as a slowing economy.
China’s light vehicle market this year is forecast by LMC to exceed 23m units, with growth edging up to around 25m units in 2015. “Despite the gradual economic slowdown, conditions in China look sufficient to provide some moderate market growth momentum in 2015,” Kelly maintains. “As well as some new demand inland, there is a rising tide of replacement demand being generated with rapid growth of the car parc in recent years.”
Asia outside China throttles back
Elsewhere in Asia, market demand is generally easing off. In Japan, sales continued to decline (on a year-on-year basis) after the consumption tax hike in April, but have remained resilient in general, with the October selling rate exceeding 5m units a year. Following the Bank of Japan’s latest monetary easing, the Nikkei stock market has rallied, but the falling yen could fuel inflation and erode consumer spending.
The South Korean market has lost some steam along with a slowing economy. Yet the market is still expected to finish this year with near record-high sales, supported by record-low interest rates and expansionary fiscal policies.
In southeast Asia, the vehicle market has gone into reverse this year. just-auto’s analysis shows that demand in Indonesia and Malaysia weakened in the third quarter after a positive first half of the year, while the rout in the Thai market – hit by political worries – shows no sign of abating.
In Indonesia, the vehicle market has been further weakened by the phasing out of fuel subsidies. On November 17th Indonesia’s new President Joko Widodo announced a 31% hike in the price of Premium petrol sold across the retail network of state oil company Pertamina. The government also pledged to eliminate fuel subsidies altogether within three years, allowing fuel retail prices to float in line with international prices.
South American prospects cool
In Brazil, the October selling rate of 3.4m units a year was stronger than expected and perhaps boosted by fiscal spending ahead of the run-off presidential election at the end of the month. However, the re-election of President Rousseff and the recent interest rate hike bode ill for the sales outlook.
Meanwhile, the troubled Argentine market has stabilised this year despite the country’s debt default in July. The selling rate exceeded 600,000 units a year for the fourth consecutive month in October. On a year-over-year basis, however, the rate of decline deepened to 40% in October which, along with a deteriorating economy, suggests that the market is yet to fully bottom out.
Global light vehicle sales (source LMC Automotive)
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