The first half of the year has seen global light vehicle sales accelerate as expanding vehicle markets have more than compensated for those that have contracted. Dave Leggett eyes the latest data and the outlook.
The story of 2014 so far is one of continuing growth for the global auto industry. Expanding vehicle markets are more than compensating for the flat or declining ones. According to the latest data from LMC Automotive, global light vehicle sales were strong in June as the market remained above the 87m units a year level again. For the first half of the year as a whole, the global light vehicle market was running at an annualised level of 86.6m units.
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LMC Automotive analyst Pete Kelly believes that the global light vehicle market this year is on course to hit around 87m units. “The US market is continuing to show some growth,” he said. “It should exceed 16m units in 2014. And so far this year Chinese demand has been solid. These markets, added to by a steady recovery in Western Europe, are helping to offset weaker demand elsewhere.”
The recent market improvers – China, the US, and Western Europe – have continued to offset weakness in other markets, notably in South America and Eastern Europe. Brazilian sales fell as the World Cup diverted consumer attention away from buying consumer durables and especially big-ticket items.
North America recovery on track
Vehicle sales in the US posted another strong result in June and, with a light vehicle selling rate of close to 17m units a year, the market could be considered as having fully recovered from the 2009 recession. The June result was a welcome surprise, and the almost 17m unit SAAR was the highest since July 2006.
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By GlobalDataLMC cautions that it may be difficult for the US light vehicle market to sustain this high level of sales in later months of the year, “so the overall 2014 total is likely to be below 16.5m units”.
Likewise in Canada, too, sales remain at a high level and LMC says it is “our expectation that the market may close in on, though perhaps not surpass, 1.8m units this year”.
Europe’s outlook clouded by developments in the east
The ongoing crisis in Ukraine has deepened lately and, at the time of writing, its full extent and the impact on both economies to the east (and especially Russia) as well as the full impact of sanctions – and possible retaliatory measures that could hit Western Europe’s economy – is unclear. However, the outlook for Russia’s vehicle market is for decline this year that could persist in 2015. LMC points out that on a seasonally adjusted annualised basis, the situation deteriorated further in Central and Eastern Europe in June as Russian sales dragged the regional total down.
Russia’s car market continued its slump in June in the wake of the effects of the ongoing crisis in neighbouring Ukraine and a worsening of consumer and business confidence in Russia. The Moscow-based AEB said that sales of new passenger cars and LCVs in Russia dropped by 17.3% in June to 199,398 units. The AEB also adjusted its 2014 full year forecast for the Russian light vehicle market to 2.45m units, which would constitute a 12% decline on 2013.
Speaking to just-auto recently, AvtoVAZ boss Bo Andersson said that the Russian car market could take two years to recover from the effects of the setback induced by the currently slowing Russian economy. The crisis in Ukraine has further dented consumer and investor confidence, but Russia’s economy was in trouble before Ukraine got worse. Private consumption growth – a key variable when looking at new car demand – in Russia was around 5% in 2013, but will slow to under 1% growth in 2014. Car demand in Russia is being squeezed by the depreciation of Russia’s currency following capital flight as well as higher interest rates. The depreciation of the rouble is putting upward pressure on car prices and interest rates have also moved up, with little prospect of them coming down before 2015.
Russia was not the only concern, however, with sales still much weakened in Turkey and Ukraine (unsurprisingly). Light vehicle sales in Turkey, an emerging market much talked about for its long-term demand potential, were down 25% in the first half as confidence was sapped following the economic turbulence of 2013.
In Western Europe, the picture remains one of a shallow, but consistent, recovery of light vehicle sales from a low base. Car sales in Western Europe grew by 3.9% in June according to LMC.
In the first six months of 2014, the region’s sales were up 5% year-on-year, and the market remains on course for a solid full year expansion.
Car sales in Germany were down by 1.9% in June, but the year-to-date market was up by 2.4%. With one fewer selling day in Germany in June, the latest result is not as disappointing as the headline figure would first suggest – the selling rate climbed back above 3m units a year and Germany’s car market ought to surpass 3m units this year.
UK car sales were up once again in June, with this market continuing to be a driving force for growth in the region this year (and heading for a 2.4m tally for the year). Car registrations in Spain grew by nearly a quarter last month, with the market benefiting from yet another iteration of the PIVE scrappage scheme. The French car market improved well after a lacklustre May. Sales in Italy were also stronger, with the selling rate picking up to 1.4 mn units/year, the first time since May 2013.
June’s result was the tenth consecutive month of expansion for the West European car market. More slow and steady growth is expected in the remainder of this year, but beware of monthly data quirks. Spain’s car market may appear to be seeing rapid growth right now, but growth is coming off a very low base (and being further boosted by the PIVE incentive).
China running at 24m units a year
Advance data indicates that the Chinese market has remained buoyant, with the June selling rate reaching 24m units a year, little changed from May. While passenger vehicle sales were strong, light commercial vehicle (LCV) sales were weak due to the uncertainty surrounding the implementation of China’s IV emission standards for LCVs.
Looking ahead, the government’s recent mini fiscal stimulus measures and some monetary easing are expected to help support the economy and vehicle sales. On the other hand, falling property prices in many cities may start to dampen consumer confidence. Analysts project 10% growth for China’s vehicle market this year. The outlook for 2015 is more uncertain.
LMC analyst John Zeng cautions that since major cities are announcing restrictions on vehicle purchases in order to curb air pollution, “panic buying” is spreading among China’s consumers and may continue to boost sales in the near term.
“On the other hand,” Zeng says, “the medium-term sales outlook is becoming more uncertain owing to the pull-ahead effect of the ‘panic buying’ and a slowing economy.” China’s Q1 GDP growth of 7.4% (YoY) was weaker than expected and the government has recently announced mini-stimulus measures to boost the economy.
Zeng maintains that China’s vehicle industry is facing what he terms a ‘new normal’. The days of easy sales may be disappearing and manufacturers have to be aware of where the growth points are – geographically and in terms of segments, and also how demand will be moving in the future. Zeng says there is plenty of car demand potential in China’s inland cities where motorisation rates (cars per thousand population) are much lower than in the more affluent eastern cities.
Another change is a forecast move towards greener vehicles as China looks to have emission standards at EU levels by 2020. That will trigger faster growth for alternative powertrains, more emphasis on fuel economy (more turbocharged engines) and – combined with incentives – greater electrification (‘new energy vehicles’ or NEVs). By 2020, he believes that NEVs will comprise 2.5% of the Chinese vehicle market. That’s still over 700,000 units a year though from almost a standing start currently. Plug-in hybrid electric vehicles (PHEVs) could be a growth pole. Zeng notes that BYD is off to a strong start with its recently introduced Qin PHEV. It sold over 2,300 units in Q1 2014.
Zeng also points to certain vehicle segments that are very hot in China. “SUVs are very strong, along with luxury and MPV segments,” he says. “If you are an OEM and you want to do well in China, you have to be present with successful product in these segments.” And he says that having a hit product in a hot segment can transform a company’s position in the Chinese market. “Ford grew by over 60% last year in China,” he says. “They did that because of the Kuga and then the EcoSport. Two SUVs changed the situation [for Ford]. GM, on the other hand, has struggled in China over the past few years because they don’t have successful product in this fast growing and highly competitive segment.”
Zeng says that sales growth in China will remain robust, but the market will remain highly competitive and demand will be constrained by rising vehicle ownership costs. OEM product strategies in China will increasingly be informed by stricter emission and fuel efficiency standards. And spreading sales to cities inland will provide challenges in distribution and in marketing to these new consumers. It all adds up to the “new normal”.
Other Asia: India and Thailand see hits to confidence
While the long-term picture for India’s auto sector and for car demand remains fundamentally positive, the economic situation has worsened over the past year. Kelly points out that finance for car purchase is less readily available than it was and that the economic slowdown is proving deeper and longer than originally forecast. “That’s causing confidence to get weaker,” he says.
“Vehicle sales this year in India are looking pretty flat. The problem for India is when this near-term malaise will change and when we are going to see recovery. When it comes, it will be strong, with double-digit growth in India’s car market, but just when we get that inflection point is very uncertain given the economic situation right now. One positive thing could be the impact of a new government and everyone will be watching that closely and whether actions are taken that can help restore business and consumer confidence quickly.”
India’s light vehicle market is forecast by LMC at 3m units (+3%) in 2014 rising to 3.45m units in 2015 and 7.3m units by 2020. The long-term big picture remains pretty positive for a country of India’s size (population number comparable to China, but a 3m vehicle market versus 23m). However, the near-term and medium-term recovery trajectory for India’s currently troubled economy is uncertain. “India is very much ‘on-watch’,” says Kelly.
Turning to south-east Asia, Thailand’s current constitutional crisis and its impact on the economy is now presenting cause for concern. Kelly dismisses some of the more pessimistic views on how investment in Thailand could be held back, plans cancelled. “To some degree, people have got used to the political situation in Thailand,” he says. “It is still seen as a good place to do business, but we may see a little bit more hesitancy from some.”
The car market in Thailand is turning down quite sharply due to the end of a rebate scheme and ‘payback effect’. LMC forecasts that the Thai light vehicle market will decline by 27% to under 1m units in 2014 although exports help to support production (forecast at 13% down, at just over 2m units).
The big plus market in south-east Asia is Indonesia, which is being seen as a new growth story in Asia. “There is plenty of demand potential in the big population centres,” says Kelly. “There are some risks, but the economic situation looks very positive. Low-Cost Green Cars (LCGC) are set to be a focal point for future vehicle production growth (approaching 300,000 units a year by 2017 versus around 150,000 units this year). Indonesia’s light vehicle market should also be approaching 2m units a year by then, according to LMC.
The Japanese market has remained resilient after the consumption tax hike in April, in part due to back-orders that were still eligible for the lower tax. In particular, Mini Vehicles, which account for about 40% of sales in Japan, have continued to post a year-over-year gains.
In South Korea, the selling rate averaged a robust 1.6m units a year so far this year, boosted by new model launches and strong sales of high-end imports. Yet a slowing economy suggests that such a pace may not be maintained in the coming months.
South America downbeat
As expected, the selling rate in Brazil fell below 3m units a year in June, as consumers were busy watching the World Cup. Sales are projected to rebound after the competition, but the outlook remains clouded by tighter credit and high inflation. The IPI tax cut has been extended through to the end of this year, but its effectiveness to boost sales is questionable.
Bad results for local sales, production and exports in the first half reflected Brazil’s weak economy, growing inflation and uncertainties about the future, according to our correspondent in Brazil.
Compared to first half 2013, vehicle sales fell 7.6%, production 16.8% and exports 34.5%, respectively. The drops were far sharper than predicted by the end of last year when it was commonly held the Brazilian economy would grow a shade over 2013’s 2.5% in 2014. Today it’s seen as a 1% GDP rise.
Manufacturers association Anfavea has itself reviewed its own, over optimistic forecasts from last December. Thanks to the partially reduced IPI excise tax now extended to year end, as announced on 1 July, the year’s final numbers are expectd to be slightly less negative at 5.4%, 10% and 29%, respectively. It means that growth on the second half (14.3%, 13.2% and 36.9%) would partially offset the slow start to the year.
The market in Argentina has undergone a collapse in 2014 – the selling rate switched from the 900,000 units/year level in 2013 to a rate of closer to 600,000 units/year in the three months to May – and the current-year outlook is clouded further by risks associated with the ongoing debt negotiations.
|
Sales (Units) |
||||||
|---|---|---|---|---|---|---|
|
Jun 2014 |
Jun 2013 |
% change |
YTD 2014 |
YTD 2013 |
% change |
|
|
WORLD |
7373764 |
7219739 |
2.1% |
43, 761,687 |
42 ,138,204 |
3. 9% |
|
USA |
1418520 |
1402408 |
1.1% |
8, 148,718 |
7 ,817,752 |
4.2% |
|
CANADA |
175786 |
171861 |
2.3% |
909805 |
883966 |
2.9% |
|
WESTERN EUROPE |
1273559 |
1235390 |
3.1% |
7, 097,676 |
6 ,729,247 |
5.5% |
|
EASTERN EUROPE |
370531 |
426649 |
-13.2% |
2, 178,640 |
2 ,342,552 |
-7% |
|
JAPAN |
443504 |
440807 |
0.6% |
2, 944,203 |
2 ,642,647 |
11.4% |
|
KOREA |
137067 |
124818 |
9.8% |
789391 |
736745 |
7.1% |
|
CHINA |
1881214 |
1716002 |
9.6% |
11, 727,967 |
10 ,672,431 |
9.9% |
|
BRAZIL / ARGENTINA |
299618 |
372257 |
-19.5% |
1, 941,979 |
2 ,181,824 |
-11% |
|
OTHER |
1373965 |
1329547 |
3.3% |
8, 023,308 |
8 ,131,040 |
-1.3% |
|
Selling rate (Units/year) |
||||
|---|---|---|---|---|
|
Jun 2014 |
YTD 2014 |
Year 2013 |
% change |
|
|
WORLD |
87,125 ,018 |
86628872 |
84419486 |
2.6% |
|
USA |
16,958 ,307 |
16069801 |
15572933 |
3.2% |
|
CANADA |
1,742 ,625 |
1763054 |
1742475 |
1.2% |
|
WESTERN EUROPE |
13,627 ,308 |
13305943 |
12879173 |
3.3% |
|
EASTERN EUROPE |
4,043 ,508 |
4605421 |
4937590 |
-6.7% |
|
JAPAN |
5,015 ,695 |
5669665 |
5255108 |
7.9% |
|
KOREA |
1,616 ,200 |
1629785 |
1507985 |
8.1% |
|
CHINA |
24,043 ,200 |
23412406 |
21875938 |
7% |
|
BRAZIL / ARGENTINA |
3,534 ,311 |
4086402 |
4473912 |
-8.7% |
|
OTHER |
16,543 ,864 |
16086397 |
16174372 |
-0.5% |
Notes: The percentage change in the final column comparesthe averageselling rate in the year-to-date with the last full year. Late reporting countries and estimates are included in “Other”. Eastern Europe includes Turkey. China includes estimate of light vehicle imports.
