Downturn in global auto sales continued in May: Scotiabank

Global auto sales fell by 6.7% y/y (nsa) in May for the ninth consecutive month of year-on-year declines, a new report from Scotiabank says.

“Sales are down by 7.0% on a year-to-date basis,” Scotiabank’s latest Global Auto Report said. “Forecasts for 2019 now sit at 77.0 million units, down from highs of 79.0 million and 78.6 million units in 2017 and 2018 respectively. “Almost all major regions will show declines in total sales. This trend can be explained to a degree by the synchronized global economic slowdown, while some variability reflects different countries’ responses to the moderation.”

Canadian auto sales rate ticked up marginally in May with a 0.1% increase on a seasonally-adjusted basis (saar), Scotiabank said, but the decline on a year-over-year basis continued. “May had the makings for a decent sales month: warm weather had finally arrived, tax refunds were in the mail – including the new carbon tax refund to many households across the country, and corporations now have a host of federal and provincial tax incentives to encourage purchases with Ontario the latest province to introduce matching depreciation allowances in its April budget,” the report said. “Nevertheless, sales were underwhelming despite these tailwinds.”

Turning to the U.S., Scotiabank reported that auto sales performed largely as expected in May with a seasonally-adjusted annualised sales rate of 17.31 million. “This represents a 5.4% (sa) increase in the sales rate over the previous month, nudging year-to-date sales up slightly to 16.9 million saar units from last month’s 16.8 million saar units,” the bank said. “Consumers responded to ramped-up Memorial Day incentives, following a lacklustre month for sales in April.” May sales have likely exhausted any pent-up demand from early-year headwinds including the government shut-down, poor weather, and strong base effects from last year’s tax incentives, Scotiabank said. “Sales nevertheless continue to decline on a year-over-year basis. May’s 0.5% drop y/y (nsa) represents a fifth month of decline,” the report said. “We expect a slowing economy and on-again, off-again trade uncertainty to modestly dampen sales growth for the remainder of the year. We forecast year-end sales to land at 16.8 million units, below 17.2 million sales last year which benefited from exceptionally strong growth and a highly accommodative policy environment.”

Mexican auto sales continued to deteriorate in May, Scotiabank said. “Sales fell sharply again by 11.3 % y/y (nsa), following last month’s drop of 10.2%,” the report said. “The early-year boost to sales in the first quarter, underpinned by minimum wage increases, has faded.” According to Scotiabank, an expected slowdown in view of the moderating economy is amplified by policy uncertainty, both domestically and abroad. “The brief reprieve from trade conflict with the U.S. had little impact on May sales,” the report said. “Deteriorating credit quality with downgrades by major rating agencies will likely continue to erode consumer confidence, along with already-tight financial conditions, that suggest a continued decline in auto sales over the course of the year.”

Turning to China, Scotiabank noted that the country’s auto sales continued to disappoint. “May witnessed a 17.4% drop y/y (nsa), representing the eighth month of double-digit declines over the last three quarters,” Scotiabank said. “Escalating trade tensions with the U.S. have been a major factor in the decline, dampening business and consumer confidence, though a slowing economy also weighs on auto sales.” The early introduction by some regions of new vehicle emissions standards that will take effect nation-wide in July 2020 has also created some headwinds to sales, the report said. “We expect the decline to continue, particularly in view of last year’s strong sales performance,” Scotiabank said. “Additional government support, along with reduced trade tensions, should moderate the decline, but not fully arrest it.”

Indian auto sales continued their sharp decline in May. “Sales dropped by 18.3% y/y (nsa) after a similarly pronounced decline of 15.0% y/y in April,” Scotiabank said. “Sales have been trending downward over the course of the year with headwinds from rising interest rates and increasing fuel costs. With the Modi government securing a second term in late May, an easing of the monetary stance, and an expectation of more policy stimulus to come, the hemorrhaging should be stemmed, but sales are nevertheless expected to continue their downward trend against lower growth expectations.”

Japanese auto sales saw a surge, the report said, but are likely a temporary factor in an otherwise flat sales environment. “May sales increased by 6.5% (y/y nsa), but an exceptional 10-day celebration of the new emperor likely distorted sales,” Scotiabank said. “Auto purchases have been relatively stable following a prolonged economic slowdown over the course of 2018 and early 2019.” A consumption tax hike (from 8% to 10%) anticipated in October 2019 is expected to dampen growth more generally, the report noted, but a recent tax reform bill offsets the impact on auto sales through reduced ownership taxes. “Trade tensions could also increasingly weigh on Japan’s outlook, particularly as Trump threatens import tariffs on automobiles and auto parts,” the report said. “Japan and the U.S. are in the midst of trade negotiations with a November deadline imposed by the U.S. administration.”

Finally, European Union auto sales continued their precarious rebound in May, Scotiabank said. “The sales rate picked up modestly in May across the region by 0.8% m/m (sa), maintaining a steady strengthening following the abrupt slowdown in September 2018 with the introduction of new emissions standards in the European Union,” the report said. “Year-over-year sales are still down by 4.6% (nsa).”