Global auto sales accelerate to record highs: Scotiabank

Global car sales have gained momentum this year, rising a stronger-than expected 5% through July, a new report from Scotiabank says.

According to Scotiabank’s latest Auto News Flash, the improvement that reflects a rebound in purchases across emerging markets following a 2% decline last year — the first fall-off since 2001 — as well as a modest acceleration among the G7, especially Western Europe.

“While gains are expected to moderate through year-end, 2016 represents the seventh consecutive annual sales increase and surpasses the previous upcycle which lasted six years,” the report said. “Strengthening labour markets and improving financial conditions suggest that the upswing will continue in 2017.”

CHINA AND WESTERN EUROPE LEAD THE WAY

Purchases in China shifted into double-digit growth in 2016, Scotiabank said, supported by a 50% reduction in the sales tax to 5% from 10% for new vehicles with engine capacity of less than 1.6 litres, as well as improvement in most key leading indicators of auto sales. “Money supply and lending activity have gained momentum in response to interest rate reductions by the central bank over the past year, house prices have rebounded and consumer confidence has stabilized,” the report said. “Vehicle pricing has also steadied as sales gains have outpaced the advance in production, reducing inventories.” Double-digit sales gains will continue through year-end in China, and are being led by second-tier cities with vehicle penetration rates much lower than Beijing and Shanghai. “Vehicle ownership averages less than 75 cars/light trucks per 1000 people in the five major cities with the fastest growth in car sales, less than one third the penetration in Beijing and nearly 30% below the national average,” the report continued.

Sales in Western Europe have advanced 7% year-over-year through July, Scotiabank said, the strongest gain in nearly two decades. “The improvement is being supported by a strengthening labour market which is reducing unemployment at the fastest pace in nearly a decade,” the report said.

RECORD VOLUMES IN NORTH AMERICA

North American vehicle sales exceeded 20 million units last year for the first time on record and have increased an additional 3% y/y through July, the report said. “Mexico is leading the way, with volumes surging 18% so far this year, buoyed by a strong labour market and accelerating credit growth,” Scotiabank said. “Auto loan growth in Mexico has picked up to 15% y/y, even as interest rates have started to increase.”

Sales have also gained momentum in Canada this year, advancing in seven of the ten provinces. “Ontario and B.C. are leading the way, with gains of 9% and 7% respectively alongside strengthening economic activity,” the report said. “Volumes even appear to be stabilizing in the hard-hit oil producing provinces, with the decline in Alberta moderating in recent months from the double-digit fall-off reported through February.”

However, the health of the U.S. consumer is the main driver of the North American sales outlook, and most indicators continue to point to ongoing gains. “U.S. job growth is advancing by nearly 2% year-over-year, vehicle affordability remains near record highs and there is no evidence of deterioration in the automotive finance market,” the report said. “As a result, we expect U.S. purchases to continue to move higher for the remainder of the year and in 2017. In fact, U.S. sales rose in July to an annualized 17.9 million units — the highest level of the year and only marginally below the pace set between last September and November.” The rebound was driven by light trucks, the report continued, as households replace their aging sedans with new crossover utility vehicles and pickup trucks. “This trend will continue to lift sales as more than 40% of the U.S. fleet is at least 13 years old,” the report said. “Furthermore, there are still nearly 50 million vehicles on the road in the United States that were built prior to the new millennium. The latest sales gain reduced U.S. inventories 2% below a year ago and points to continued output gains in the months ahead.”

EMERGING MARKETS REGAIN MOMENTUM

Car sales in the emerging markets have started to recover from last year’s slide, even as Russia and Brazil continue to report double-digit declines. “The improvement has been greatest in Asia with purchases (excluding Japan) jumping 9% so far this year,” Scotiabank said. “Indonesia stands out as a market where the consumer is gaining significant momentum. Car sales in Indonesia have jumped 13% year-over-year in recent months, reversing a 16% slump in 2015.”

Some improvement is also evident across South America, the report said. “Chile is leading the way, with sales advancing 6.5% so far this year, a sharp reversal from a 16% slide in 2015,” Scotiabank said. “However, an additional 22% year-over-year slump through July in Brazil — which accounts for nearly 60% of overall sales across South America — confirms that the region will lag for the third consecutive year.”