Auto sales downturn begins, as Top 7 markets plateau

All autosSept15Slowly but surely, it is becoming clear that the world’s auto market has reached its ‘peak car‘ moment.  One key piece of evidence is the above chart, which slows how volume growth has now plateaued in the Top 7 markets, as the Great Unwinding of policymaker stimulus continues:

    • It shows the 12 month moving average of total sales in China, US, EU, Japan, Russia, Brazil and India
    • These top 7 markets are over 80% of the total world market
    • Clearly sales volume has begun to plateau, as the second chart highlights

Auto Top7 Sept15

It highlights how there has been only 1% growth in the overall market in the January – July period versus 2014, and the underlying picture is actually negative as we move into H2:

  • China’s market is showing 6% growth to date, but its sales have been falling since June
  • US sales are up 4%, but used car prices are now down 7% making them attractive versus new cars
  • Europe is up 9%, but the ECB pledge yesterday to increase stimulus confirms current fragility
  • Japan is down 12%, and total sales are now back at 2010 levels due to its ageing population
  • Russian sales are down 35%, despite new government subsidies, as its commodity income falls
  • Brazil is down 21%, with no recovery in sight due to its recession and rising unemployment
  • India is a bright spot, up 7%, but of course its market is only 4% of the total Top 7 volume

Almost certainly, therefore, total sales will fall over the year. And with China’s economy continuing to slow, total 2016 sales are likely to be even lower.

This may sound like bad news.  And it will be for companies committed to product sales – either of cars themselves, or of car components.  In Germany, for example, the auto manufacturers association has reported that 3 out of 4 jobs in the industry (including component manufacturers) depend on exports.

But challenges also create opportunities for those prepared to develop new business models.  As we have argued in Boom, Gloom and the New Normal, people’s real need is for mobility – not for cars. In turn, this means the opportunities to develop a more service-based value proposition are currently greater than they have ever been before.

The problem is that we have largely wasted the past few years, when these new models could have been under development.  Instead, companies and investors, understandably, carried on operating in an old normal way – believing that central bank stimulus would return markets to SuperCycle levels.

Now, we all have a lot of catching up to do, as reality destroys this wishful thinking.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. Paul is also an invited member of the World Economic Forum’s Global Agenda Council. 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.