China continues to dominate the Asia-Pacific regions automotive market

China continues to dominate the Asia-Pacific region's automotive market

After a bumper 2014 in Asia-Pacific, buoyed by growth in China's car market, Tony Pugliese considers the outlook for markets in the region in 2015.

Last year was a good year for the car industry in Asia-Pacific region on the whole. The tally of vehicle sales in the region is yet to be finalised, but we estimate that the market increased by 4.6% to 37.76m units in 2014. Growth was driven mainly by the continued rise of China as the world's largest vehicle market.

Most markets in the region are expected to have finished the year positively. The main exception to this is Thailand, which has suffered its sharpest decline since the 1997-98 Asia financial crisis. Indonesia too could end up slightly lower this year, with demand weakening markedly in the last two months.

Predicting how the markets will behave in 2015 is a bit tricky, not least in China where volumes have risen to new record levels every year for the last 10-15 years. However, economic growth slowed to 7.3% in the third quarter, from peak double-digit levels just a few years ago. For China, that economic slowdown is likely to prove significant and to combine with signs of industry over-supply to further dampen growth in 2015.

Most markets in the region have enjoyed good runs over the last few years, with most hitting new record highs in 2014. With the rate of economic growth slowing in many markets, some of the region's vehicle markets look saturated.

Although lower oil prices will have a positive effect on all economies in the region, weaker currencies and higher interest rates in many markets will offset these benefits.

China

In China there is rising concern over vehicle emissions, with air pollution rising to intolerable levels in many cities at certain times of the year. While acknowledging that coal-burning is a key source of air pollution, many local authorities are also looking at ways of cutting vehicle emissions and congestion.

Limits on official vehicle purchases have been imposed already by numerous municipal authorities nationwide, but this is also to help curb the excesses enjoyed by state officials. The adoption of alternative fuels such as natural gas, electric and hybrid technologies is accelerating.

Measures such as limiting the use of private vehicles in cities on alternate days when pollution levels exceed acceptable levels are also being considered by key municipalities such as Beijing. Car sharing is being encouraged, including official car-sharing schemes involving EVs.

With 154m cars on the country's roads and over 23 million annual vehicle sales, China is rapidly becoming the world's most important market for most vehicle manufacturers. Any policy changes will be closely monitored.

Keep an eye on the Chinese economy in 2015. It was losing a little momentum in the second half of 2014 and policy-makers in Beijing will be anxious to avoid any further slowing.

Japan

Japan is still feeling the effects of last April's sales tax rise, from 5% to 8%, and the Abe government wisely postponed by 18 months a second hike to 10% which was originally scheduled for the end of 2014.

By announcing and winning a snap election in mid-December, Abe has now secured more time to implement his plan to revitalise the Japanese economy after two decades of deflation.

Further economic stimulus is needed to avoid the setbacks of 20 years ago, when tax increases derailed the country's economic recovery.

The vehicle market remained surprisingly resilient in 2014 despite the sharp economic contraction in the quarters following the tax hike. Sales are likely to struggle in 2014 - especially in the first two quarters as they come up against strong year-earlier numbers.

Indonesia

The Indonesia government in November made a second major cut in fuel subsidies in eighteen months. Retail prices of the widely-used Premium petrol and Solar diesel increased by 31% and 36% respectively and benchmark interest rates were increased to 7.75% as a pre-emptive measure against inflation.

Economic growth fell to just over 5% in the third quarter, from 5.8% for the whole of 2013 and 6.2% in 2012. The rupiah also weakened to a five-year low against the US dollar this month.

The domestic economy is beginning to lose momentum and the vehicle market is beginning to weaken. With new model activity expected to be slower in 2015, the vehicle market is likely to weaken further in the short term.

Thailand

The Thai vehicle market in 2015 is expected to recovery moderately from a rout which is expected to have resulted in a market drop of over 33% to 885,000 in 2014. Increased political stability and a resumption of normal government activities after the military coup last May, including the disbursement of budgets, will help increase consumer and business confidence.

But recovery in the domestic vehicle market is expected to be slow, with household debt having risen sharply over the last few years. GDP growth will be lifted by higher government spending, particularly in infrastructure projects, which should provide a stronger lift to the truck sector.

Malaysia

The Malaysian government plans to introduce a 6% goods and services tax (GST) at the beginning of the next financial year, on 1st April 2015. It will replace the current single-stage tax of 10%.

The Malaysian Automotive Institute (MAI) expects vehicle prices to fall between 1-3% as a result of the change-over. Malaysia is not the cheapest market in the region for cars, so some market distortions can be expected, particularly in the first quarter of the year as buyers hold out for cheaper prices.

Vehicle sales in Asia-Pacific by market, 2012-2014

(000s) 2012 2013 2014E %ch 14/13





China 19306 21984 23670 7.7
Japan 5370 5376 5505 2.4
India 3597 3281 3385 3.2
South Korea 1450 1548 1575 1.7
Indonesia 1116 1230 1245 1.2
Thailand 1436 1325 885 -33.2
Malaysia 627 652 665 2.0
Taiwan 366 378 415 9.8
Philippines 183 211 248 17.5
Vietnam 81 97 128 32.0
Singapore 34 27 39 44.4
Total 33566 36109 37760 4.6

2014 estimated

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