Global auto industry sales growth depends on China

Global autos Jan14Autos remain the world’s largest manufacturing industry, and the single biggest source of demand for chemicals and plastics.  According to detailed analysis by the American Chemistry Council, each new US auto is worth $3,539 in terms of sales – and involves a wide range of products including antifreeze, plastic dashboards, bumpers and windows, as well as upholstery fibres, tyres and coatings.

So the chart above, which summarises sales in the world’s 7 largest markets since 2007, is cause for concern.  These markets account for over 80% of all auto sales:

  • Including China (yellow), sales have increased 18% from 47m to 55m
  • But excluding China, they have fallen 2% from 41m to 40m

Equally of concern is the detailed picture:

  • US sales (green) have fallen 4% over the period, EU sales (red) are down 18%
  • The smaller markets have done well until recently, but have now slowed
  • Brazil is up 42%, but fell 1% in 2013 (pink) despite the boost from soccer World Cup and Olympics activity
  • Russia is up 4% (orange), but fell 6% in 2013: India is up 77%, but fell 7% in 2013 (blue)
  • Japan is up only 4%, and was flat in 2013 (dark blue) despite the Abenomics stimulus

So a lot depends on China to power future growth.  This, however, looks most unlikely to happen, for reasons discussed in the blog’s detailed analysis last week.  The new leadership are already cutting back lending in the shadow banking sector, which has been the main source of finance for auto sales.

Supporting evidence for this analysis comes from developments in those countries who had been major suppliers of raw materials to China.  Brazil and others have all seen their economies go into reverse as China cools.

Equally, the blog is quite doubtful about the bullish forecasts for US sales this year.  It continues to believe these have been largely driven by financing deals – which made new cars more attractive than used cars.  Only 42m used cars were sold in 2013, as the average price has risen 18% since 2007, due to relatively few new cars being sold in 2008-11.  But now more cars are now coming on the market, and dealers expect prices to fall again.

Globally, analysts WardsAuto also report that manufacturers’ inventory in the major markets in December was 9% higher than in 2012 in both the US and Asia-Pacific, and 4% higher in Europe.

Of course, policymakers’ optimism over a sustained recovery may still turn out to be well-founded.  But behind the hype, the detail of current auto industry performance suggests that any company without a Plan B risks finding themselves in a difficult position by the middle of the year.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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