Ninth consecutive global sales record expected in 2018: Scotiabank
Stronger economic growth and replacement demand are expected to drive sales higher in North America and Western Europe, a new Scotiabank report said.
Global car sales increased 2.5% in 2017, as stronger-than-expected global economic activity lifted purchases to an eighth consecutive annual record, a new report from Scotiabank said.
A further acceleration in economic growth across all regions and healthy financial conditions are expected to boost sales 3% in 2018, Scotiabank’s latest Global Auto Report said, extending the sales cycle further.
“Robust sales gains over the past decade have lifted per capita global new vehicle penetration to the fastest pace since the 1950s,” the report said. “Record volumes are occurring at a time when the industry is undergoing significant technological disruption, which is leading many to suggest the internal combustion engine is about to be replaced as the industry benchmark.”
However, traditional-engine models still account for 99% of overall global sales, and are expected to continue to garner more than 90% of the global market in a decade, the report cautioned.
The mature G7 nations represent nearly half of global auto purchases, Scotiabnak said, but with their sales projected to advance only 1.5% in 2018, these markets are likely to constitute roughly 20% of the increase in global volumes this year. “We expect sales in the key U.S. market to climb to 17.4 million units this year, bolstered by strengthening economic growth, accelerating income gains and the best vehicle affordability of the past decade,” Scotiabank said. “Our view differs from the consensus, which believes that U.S. passenger vehicle sales peaked in 2016 and is set to decline to less 17 million units this year. However, this perspective neglects the fact that last year’s decline in U.S. sales were driven by a fall-off in business purchases, as daily rental companies bought fewer vehicles due to excessive inventories and falling demand, a development unlikely to be repeated in 2018.”
Meanwhile, Americans continue to drive their vehicles more than ever, at a time when the age of the vehicle fleet is at record highs. “Roughly 40% of the U.S. fleet is at least 13 years old,” the report said. “This means that there are more than 100 million cars and light trucks on the road in the U.S. that will have to be scrapped over the next several years.”
Canadian purchases climbed to a record 2.04 million units last year alongside stronger-than-expected economic growth and job creation, Scotiabank said. “In fact, employment growth more than doubled in Canada last year to nearly 2% year-over-year (y/y), the best performance in ten years,” the report said. “However, some moderation in employment and income growth combined with deteriorating affordability are likely to reduce Canadian car and light truck purchases to 2 million units in 2018, the second highest level on record. Sales in Western Europe are projected to increase to 14.5 million units in 2018, bolstered by the strongest economic growth of the past decade.” Sales gains are expected to be even stronger in Eastern Europe, Scotiabank said, as rising exports continue to buoy labour markets and the economic recovery gains momentum in Russia.
Developing markets accounted for more than 85% of the increase in global sales last year and will continue to lead growth going forward. “China remained a key driver of global sales gains, but its share of the advance moderated to less than 40% last year, from roughly 60% since the beginning of the current global economic expansion through 2016,” Scotiabank said. “China’s share of global sales gains will likely decline to less than 30% in 2018, as other developing markets shift to the forefront of growth and account for more than half of the increase in global sales. Developing markets in Asia (ex-China) are projected to lead the gain this year, with volumes likely to jump 10% y/y, the best performance since 2010.”
Several Asian countries, including Thailand and the Philippines reported double-digit sales gains last year, the report said, and are expected to remain on this pace in 2018. “The advance is expected to broaden across Asia, as stronger economic growth and increased export momentum boost labour markets and incomes,” Scotiabank said. “Asia is the major supplier of electronics and machinery to the world, accounting for more than 70% of global semiconductor shipments and more than 40% of machinery exports. Both industries are experiencing sharp accelerations in new orders, which will buoy production and employment going forward. Unemployment in Asia and other emerging nations is already at multi-decade lows and will continue to move lower.”
Car sales in South America jumped 14% last year, reversing three consecutive annual declines. Strengthening economic activity and rising commodity prices will likely keep the region among the growth leaders in 2018. “In particular, the Brazilian economy is back in growth mode following its deepest recession on record, which included three consecutive annual contractions,” Scotiabank said. “Rising exports have led the improvement in the Brazilian economy, but employment and incomes are also on the upswing, supported by a sharp reduction in interest rates since late-2016.” Other Latin countries are also benefiting from higher commodity prices and improving labour markets. “South America is the continent most affected by commodity cycles, as commodities and resource-based manufacturing account for more than 60% of its exports, double the global average,” Scotiabank said. “In particular, car sales in Chile jumped 18% last year as strengthening copper prices lifted consumer confidence and the labour market. Employment growth in Chile is currently the strongest since 2013 and will benefit from the development of new mining projects. Chile accounts for 25% of global copper production, and resources represent a similar share of its overall economy.”