Where would the global auto industry be without the Chinese market? Without China, sales in the other Top 6 markets stalled last year, and were down 100k.
And what will happen now China’s economy is slowing, and it is also starting to develop a large used car market for the first time? Buyers will then have a choice between expensive new and cheaper used cars? That’s what we will discover in 2016, particularly once the subsidies for small car sales come to an end.
The chart above shows how sales have changed in the Top 7 markets which account for around 85% of global sales:
- China is the stand-out winner, with sales having trebled from 6.3m in 2007 to 20.5m in 2015
- India has also done well with sales nearly doubling from 1.4m to 2.7m – but, of course, is tiny compared to China
- The US is also up versus 2007, but only by 7% – from 16.1m to 17.3m
- Brazil and Russia boomed and then collapsed again: 2015 sales equalled 2007 at 2.5m and 1.6m respectively
- Europe is down from 14.4m to 13.7m – it is hard to believe it was the leading market in 2009, when others slowed
- Japan is down from 4.4m to 4.2m, despite all the promises of new growth with Abenomics
- Overall, sales in the Top 7 grew from 46.7m to 62.7m: but without China were only up 3% from 40.4m to 42.1m
Autos are the largest single market for chemical producers, with each new car containing around $3500 of product according to American Chemistry Council data. And the writing has been on the wall as far as sales increases outside China for some time. 2014 was a similar story of over-dependence on China. The only difference is that then, the industry still wanted to believe that China would continue to grow at double digits for decades ahead.
Now that myth has been destroyed, along with the myth that oil would always be at $100/bbl. And Q1 is proving to be a very difficult time for many companies and investors as a result.
Of course, times like this are when the really good companies begin to leave the others behind. And that is what I suspect will happen during 2016. It is no accident that the Chinese word for Crisis contains the characters for Danger and Opportunity.
The Winners in the industry will already be making plans to ensure their survival – whatever 2016 may bring. And they will also be planning to take advantage of the Opportunities that are now available, as we describe in our new 5 Critical Questions Study. This will be published very soon, and I would be delighted if you wanted to subscribe.