Global auto markets have started to move in new directions. That much is clear from comment by the major national auto associations. This will be a shock to manufacturers, who have over-expanded production. Price wars and capacity cutbacks are inevitable if the industry forecasts are correct.
The chart starts from 2005, and shows the 7 major markets, which account for around 4 out of every 5 cars sold in the world. It shows how uneven the recovery has been since 2008 (2014 H1 data is annualised for comparison):
- US sales peaked at 17m in 2005 and are forecast to be 16m in 2014 (green)
- The key to the post-2009 recovery has been sub-prime financing, making new cars cheaper than used ones
- China sales took off when its stimulus led volumes to jump from 6.7m in 2008 to 10.3m in 2009 (yellow)
- Stimulus also temporarily made the EU the world’s largest market in 2009 at 14m, but it is now 12.6m (red)
- Japan peaked in 2005 at 4.7m, but April’s VAT increase has dampened the impact of the 2012-13 stimulus (blue)
- Russian sales have risen and fallen with the oil price since 2005, but sanctions are now reducing them (orange)
- Brazil sales were motoring ahead with the World Cup/Olympics, but are now slowing (purple)
- India sales peaked in 2012 at 2.6m, and now seem to be stabilising at 2.4m (light blue)
Overall, the key to growth since 2007 has been China. As the arrows show, sales in the other 6 major markets totalled 40.2m in 2006. At H1 levels, they are almost exactly the same in 2014 at 40.1m.
This highlights the critical importance of the new leadership’s policies to the global auto market. They clearly need to maintain auto sales due to the industry’s importance for employment. But they are more focused on low-cost cars, in the $7k price bracket, more suitable for potential buyers in the Tier 2 - 4 cities outside Beijing and Shanghai.
This highlights a major shift away from the past years, where the wealth effect from the property bubble allowed the Tier 1 cities to buy more Western-type cars.
Another factor is the war against corruption, which seems likely to hit Volkswagen particularly badly, as its Audi cars have been the car of choice for most government officials. The leadership is now aiming to scrap the use of official cars, as only 1/3rd of mileage is for proper purposes. Junior officials have already been told they will lose their official cars and be given an $80/month allowance instead. As China Daily commented:
“The measures build on President Xi Jinping’s campaign against lavish spending for government officials, who’ve long been used to riding in Audis. The announcement also follows directives for the government to bolster its purchase of electric cars and local branded vehicles.”
Past performance is therefore unlikely to be a good guide to development in the next few years. The blog will explore these new trends in the major markets in more detail over the next few days, now we have official H1 data available.