BRIC auto sales stall as Brazil and Russia recessions worsen

Consumer demand

SHARE THIS STORY

BRIC Apr16Clouds are gathering over the auto industry, as the impact of the post-2008 stimulus programmes fades into history.

It is hard to believe that back in 2013, only 3 years ago, analysts were confidently predicting that Russia would have become the world’s 5th largest market by 2020.  And they were similarly forecasting great things for Brazil, which had just become the world’s 4th largest market.  But as the chart shows, since then:

  • Russia’s sales have fallen 48% versus 2013, to total just 319k in Q1
  • Brazil’s sales have fallen 44% over the same period, to total 465k in Q1
  • Both markets are now smaller than India, although its sales were only up 4% versus 2013 at 700k in Q1

This highlights the slowdown in the former high-flying BRIC countries (Brazil, Russia, India, China), which had been expected to support global economic growth for decades to come.  Consensus thinking had assumed that emerging markets would account for 2/3rds of global auto sales by 2020, compared to less than 1/3rd in 2000.

The problem was the general assumption that (a) growth was inevitable as the BRICs were all becoming middle class by Western standards, and (b) auto penetration would inevitably rise as this “rising middle class” would all want to buy new cars, as Reuters reported in 2013:

The market will grow as a rising middle class becomes first time car owners or upgrades aging models.  There are only 290 cars per 1,000 Russians versus 560 in Western Europe and many of those vehicles are old, while a decade of strong growth driven by Russia’s mineral wealth is slowly empowering a greater chunk of its population.”

Today, of course, it is becoming clear that the outlook is much more complex.  As we note in the new Study, ‘Demand – the New Direction for Profit’, GDP/capita tells a very different story about potential growth levels for the future:

  • Western developed countries mostly have GDP/capita in the range of $40k – $60k
  • Brazil’s GDP/capita is just $8.8k, and Russia $8.5k
  • The other BRICs are even lower, with China at $8.3k and India only $1.7k

For the moment, China’s sales are still motoring along, but the pace of growth has slowed.  Volume is up 25% versus 2013, but was up just 6% in Q1 versus 2015.  And the nature of the market is changing rapidly:

  • Post-2008 sales growth was focused on new car sales, which were affordable due to the property bubble
  • Current sales are being boosted by a 50% tax cut on sales of smaller cars, with engines less than 1.6 litre
  • And used car sales are being boosted by new State Council support to promote the sector
  • As I noted last year, it is currently just half the size of the new car market, but is now poised for rapid growth

The issue was that China had relatively few cars on the road in 2008, and so the stimulus programme artificially boosted new car sales.  But now, all those new cars are entering the used car market, giving buyers a choice – for the first time – between used and new.  This must cannibalise future new car sales growth.

Auto manufacturers are therefore learning their lesson the hard way.  Having rushed to build new capacity, they are now either closing it – as in Russia – or repositioning it to focus on export markets as in Brazil, China and India:

  • Brazil’s exports were up 24% in Q1, China is targeting 3 million auto exports by 2020
  • Ford in India is already exporting nearly half of its new EcoSport production

In turn, this is exporting the BRICs problems into other markets.  Volvo began exporting from China last year, and GM is starting to export this year, with more manufacturers planning to follow.  Clearly, difficult times lie ahead for the industry and its suppliers, as the over-supply created during the stimulus years now battles to find a home.

 

PREVIOUS POST

US GDP Q1 forecast at just 0.1%; global chemical output slows

11/04/2016

“Confusion now hath made his masterpiece”.  This quotation from Sha...

Learn more
NEXT POST

Water wars, food shortages create urgent need for new, demand-led approach

15/04/2016

Companies and investors need to refocus on demand as the key driver for future r...

Learn more
More posts
China’s plastic ban and recycling launch marks end of ‘business as usual’ for plastics industry
26/01/2020

Paradigm shifts start slowly at first, and it is easy to miss them. But then one day, they suddenly ...

Read
Automakers face stiff headwinds in big emerging markets
19/01/2020

Brazil, Russia, India and China disappoint as manufacturers face investment demands of EVs © Bloomb...

Read
Portugal shows the way to climate neutrality by 2050
24/11/2019

“If you don’t know where you are going, any road will do”. The Irish proverb’...

Read
The next billion phone users will be buying $10 smart feature phones, not $1000 iPhones
10/11/2019

Smartphone sales plateaued in Q3, down 9% since Q3 2017’s peak of 1.55bn, as the chart shows....

Read
Companies ignore the Perennials 55+ generation at their peril
13/10/2019

Nearly a third of the the world’s High Income population are now in the Perennials 55+ generat...

Read
Auto markets set for major disruption as Electric Vehicle sales reach tipping point
21/09/2019

Major disruption is starting to occur in the world’s largest manufacturing industry.  Hundred...

Read
Smartphone sales continue their decline, whilst $25 smart feature phones open up new markets
04/08/2019

Global smartphone sales have now been falling for 8 consecutive quarters, since Q3 2017. They are no...

Read
Smartphone market decline begins to impact global stock markets
19/05/2019

The bad news continues for the world’s smartphone manufacturers and their suppliers.  And Pre...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more