The global automotive market is continuing to grow, according to analysis carried out by just-auto. However, demand in key markets is easing as concerns rise over the outlook. Dave Leggett provides a commentary.

The global automotive pie is growing in 2018. Our analysis shows that the Q2 annualised sales rate for the global light vehicle market was up 3.8% on last year’s pace at just over 97m units. The market is closing in on 100m. By the year-end, we’ll be talking about another record year, with China posting over 30m units, the US close to 17m and Western Europe over 14m again. Emerging markets such as Indonesia and India are also making a growing contribution to the annual tally. Global economic growth for 2018 and 2019 is projected by major forecasters at close to 4% in each year – a respectable level by historical standards.

However, there are concerns over the underlying health of the industry and prospects that are not easily dismissed. Indeed, they were highlighted in some of the company details in the latest round of quarterly financial reports. For the OEMs, bottom lines are clearly coming under pressure. The Chinese market is indeed growing again this year, but it has also become a lot more competitive and many analysts see a period of slower market growth ahead. China’s automotive sector could face a period of overcapacity which would compound difficulties for OEMs in what is already a very competitive market (BMW was among carmakers who saw first half sales down).

The world’s second biggest market – the US – is also topping out and becoming more competitive, incentives up. North America has been extremely lucrative for Detroit as it bounced back rapidly from the last recession, but the latest financial results clearly show that it has become a more difficult demand environment, margins under pressure.

And then there are question-marks over prospects for the global economy and the risks that come from rising trade tensions and newly imposed tariffs. The automotive industry, with its complex products and  global supply chains, is particularly vulnerable to additional costs applying to international trade. Investment is deterred by uncertainty over things like trade rules and costs. Laws of unintended consequences can also follow as future manufacturing investment flows are impacted in directions that policymakers had not intended. The US auto industry is well aware of the negative competitive effects that can follow import tariffs designed to help it. The German auto industry, a major source of FDI to the United States, has objected strongly to new US import tariffs on aluminium and steel, as well as those applying to a host of Chinese products that provoked retaliation. New US import tariffs applying to a range of goods, including cars, have been met with retaliatory tariffs imposed on imported US goods by China. And that has, somewhat ironically, hit vehicle shipments to China from foreign-owned plants in the US (eg Mercedes and BMW). Vehicle makers are monitoring the situation closely and are clearly reluctant – in a highly competitive market – to fully pass on new tariffs to customers, which means they have to accept lower margin on vehicles sold.

The International Monetary Fund (IMF) has said that the balance of risks has shifted further to the downside.

Over the next 2-3 years, what happens to the international trading environment will impact the auto industry both directly (immediate financial impacts through higher costs to international trade) and indirectly. The indirect feedback loop is via lower global economic growth and lower sales of cars and trucks as a result. In its latest economic report (July),  the International Monetary Fund (IMF) said that the balance of risks has shifted further to the downside, including in the short-term. It warned that the ‘recently announced and anticipated tariff increases by the United States and retaliatory measures by trading partners have increased the likelihood of escalating and sustained trade actions’. And these could, it said, ‘derail the recovery and depress medium-term growth prospects, both through their direct impact on resource allocation and productivity and by raising uncertainty and taking a toll on investment’. Thus far, the picture has varied, risks oscillating. US President Trump has initiated some actions and threatened to take others. But he has also stepped back on  occasions, apparently satisfied that sufficient progress has been made to at least address US concerns over trade imbalances and unfair practices (for example, in the agreement to work together with the EU to reduce tariffs on US-EU bilateral trade).

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By GlobalData

As the VDA President, Bernhard Mattes, recently put it, the de-escalation signal is important and represents a big step forward following the developments of recent weeks. It means that now a real opportunity exists that additional import duties – not to mention a trade war – can be avoided between the US and the EU. He also added that it is all the more important that a comprehensive solution to the tariff disputes should be found, including other countries affected – such as China, Mexico and Canada.

The international trading environment has clearly become a more volatile one and it is a development in the macro environment that we need to keep an eye on in the coming months. The automotive industry is in the front line and rightly concerned, even as the overall market continues to grow.

Regional issues ahead

North America

  • Will the US light vehicle market reach 17m (17.2m last year) units in 2018? It will be a close-run thing.
  • Will OEMs exposed on trade tariffs and with US manufacturing bases reconsider sourcing strategies and shift allocations around the world (Volvo already has)? 
  • Can Jeep continue its recent US sales surge?
  • NAFTA participants appear close to an agreement on content rules for trade in cars, but will they get over the line, agreement and stability restored?


  • To what extent will WLTP introduction in September boost (pull-forward effect) the European car market in August? And what will the impact on production schedules be after September 1 as OEMs push for testing compliance across model ranges?
  • Will the West European car market hit 14.5m units – a historically high level – in 2018? If it does, where does that leave 2019 prospects, especially given it is the year of Brexit?
  • How far will the loss of diesel share in the car market go?
  • Can Russia’s recovering car market continue to grow if energy prices stabilise?


  • Economic growth in China is projected to moderate from 6.9% in 2017 to 6.6% in 2018 and 6.4% in 2019, as regulatory tightening of the financial sector takes hold and external demand softens. How will that impact car demand, which is already softening in 2018?
  • Will softer demand herald an industrial shakeout as margins generally come under pressure and smaller OEMs/brands competitive weaknesses are increasingly exposed?
  • Keep an eye on electric vehicles and NEVs. There are lofty ambitions in Beijing for higher sales of NEVs, but will the SUV obsessed market take to them in big numbers?

See also: Global automotive market report – Q3 2018