Global auto sales to set eighth consecutive annual record in 2017: report

Global car sales are on target to set an eighth consecutive annual record, representing the longest auto industry up-cycle of recent decades, a new report from Scotiabank said.

The global economy is currently expanding at the fastest pace in more than two years, Scotiabank’s most recent Global Auto Report said, and this is leading to a re-acceleration in global sales. During July, global volumes advanced 3% year-over-year (y/y), up from a flat performance in the second quarter of 2017.

DEVELOPING MARKETS DRIVE SALES ACCELERATION

Developing markets are leading the sales gains, Scotiabank said, with volumes jumping 14% y/y in July, the best performance in nearly five years. “This represents a significant broadening out of the advance in global sales, as these markets had previously declined for three consecutive years,” the report said. “Stronger-than-expected economic growth in China is also a key contributor to the recent global sales acceleration, especially since it is being accompanied by firmer car prices and inventory normalization. These developments have prompted an upgrade of our 2017 sales forecast for China to a 3% annual gain, up from the small decline that we originally envisioned. New car sales in China are now projected to exceed 24 million units and account for 30% of global volumes, up from 25% only three years ago.”

LOWER RENTAL VOLUMES DAMPEN AMERICAN SALES

Despite record global purchases, a temporary de-fleeting in the U.S. rental car industry has led to an 8% drop in fleet volumes in the U.S. this year, and will reduce overall U.S. purchases for the first time since 2009, the report said. However, strengthening consumer balance sheets and an aging vehicle fleet have enabled household volumes to remain resilient, keeping overall U.S. sales above 17 million units for the second consecutive year, and are expected to support higher sales in 2018. “As we have pointed out in previous reports, the popularly perceived problem of rising subprime delinquencies is not having a material impact on U.S. new vehicle demand,” Scotiabank said. “New vehicle pricing is at record highs, and automotive credit quality has improved alongside fewer subprime auto loans. Stronger-than-expected economic growth and healthy labour markets are lifting purchases in Canada and Mexico to record highs.”

Employment growth has more than doubled in Canada over the past year to nearly 2% y/y, Scotiabank said. The report described this as “the best performance in 10 years”, and said it is buoying household incomes and purchasing power. “Meanwhile, the labour market is even stronger in Mexico, advancing by more than 4% y/y, which is helping to boost sales to a fourth consecutive annual record,” Scotiabank said.

Car sales also remain in “expansionary mode” throughout continental Europe, the report continued, supported by the acceleration in economic growth to a decade-high. “The sales improvement is broadly-based, with volumes on target to climb to new highs in several EU nations this year, especially members in Central and Eastern Europe,” Scotiabank said. “The UK is the exception, with household car purchases declining 5% y/y through July, undercut by slowing economic growth, deteriorating income trends, and slumping consumer confidence. The UK economy initially withstood the impact of the decision to leave the EU, but spending power is now being pressured by a weakening currency and sluggish wage growth.”

SOUTH AMERICA LEADS THE WAY

Car sales in South America have jumped 12% this year, Scotiabank said, the strongest gain since the global economic recovery was in its infancy. “The improvement reflects the end of the economic downturn in Brazil, a market which normally accounts for nearly 60% of overall volumes in South America,” the report said. However, sales are also reviving in most other countries, buoyed higher commodity prices and stronger economic activity. “South America is the continent most affected by commodity cycles: commodities and resource-based manufacturing account for nearly 70% of its exports, double the global average,” Scotiabank said. “Outside of Brazil, sales gains are strongest in Argentina and Chile. However, purchases are being held back in Colombia by a recent increase in the new vehicle sales tax and volatile global oil prices.”

SALES GAINS BROADEN ACROSS ASIA

And while China has been the key driver of Asian volumes in recent years, purchases have also accelerated in most other countries during 2017 alongside strengthening economic activity, Scotiabank said, and will climb above 13 million units this year. “In particular, export growth in Asia is now advancing at a double-digit pace year-over-year, reversing two consecutive years of decline,” the report said. “Employment growth has also picked up across the region, as economic activity across Asia is now advancing in excess of 5.5% y/y, two percentage points faster than the global average.”