Weak sales in China drove global auto purchases down in October: Scotiabank

Global auto sales were dragged down in year-on-year terms in October 2018, a new report from Scotiabank says, with a 5.2% decline owing to falling purchases in China and soft activity in the European Union that offset an earlier surge from inventory clear-outs ahead of new emission rules.

Canadian auto sales contracted by 1.9% year-over-year (y/y) for an eighth consecutive month of annual declines in October, Scotiabank’s latest Global Auto Report says, but ticked up by 3.1% from September in seasonally-adjusted terms. Compared to the same period last year, January–October sales declined by 1.7% y/y in line with softer economic growth in net oil-producing regions after 2017’s recovery, and cooler household spending across Canada. “Year-to-date auto sales have been buoyed by a strong 4.5% y/y year to date expansion in fleet purchases compared to weak retail auto sales which have fallen by around 2.5% y/y year to date,” Scotiabank said, “We continue to forecast Canadian vehicle sales to close the year at 2.00 million units sold, down from 2017’s all-time high of 2.04 million deliveries.”

Overall sales remain particularly resilient in Ontario, Scotiabank said, with a 0.8% y/y year to date expansion off a strong start to the year. “On the flipside, purchases in Alberta and BC have each posted a near-5% y/y year to date contraction,” the bank said. “Sales in Quebec are down so far this year by 1.8% y/y year to date.”

In the U.S., meanwhile, vehicle sales were stronger than expected, with sales advancing slightly by 0.5% in both month-to-month and y/y seasonally-adjusted terms in October. “The ten-month year-to-date sales total marks a small 0.3% y/y year to date advance which, alongside stronger-than-expected economic growth, so far beats expectations for a slight decline in sales in 2018 to 17.0 million units from 2017’s total of 17.1 million units,” Scotiabank said. “Ninety-days-and-over auto delinquency rates have risen steadily in the US to 4.3% in Q3-2018 from a post-financial-crisis low of 3.1% in Q3-2014, which may reflect a deterioration of credit quality in the sector.”

Turning to Mexico, Scotiabank noted that auto purchases have contracted in year-on-year terms for seventeen consecutive months after October’s 4.9% y/y decline, resulting in a year-to-date decrease in sales of 6.9% y/y. “Buyers have been kept at bay amidst Banco de Mexico’s tightening cycle; during which the central bank’s policy interest rate has increased rapidly from 3.00% in late-2015 to 8.00% currently,” the report said. “In seasonally adjusted terms, vehicle sales totalled 117,000 units in October 2018, down roughly 14% from the 137,000 units sold 24 months prior.”

In  China itself, after a strong showing in the first half of the year, auto sales have felt the impact of tighter lending controls deployed by Beijing in late-2017 and are now on track to contract in 2018 after posting a 12% y/y drop in purchases in October. “With steeper U.S. tariffs on Chinese imports on the horizon – expected to rise from 10% at present to 25% in January on US$ 200 billion in Chinese exports to the U.S. – we expect the Chinese government to allow for a freer flow of credit, which may support higher auto deliveries,” Scotiabank said. “Nevertheless, the impact of the U.S.-initiated trade war may still dent expectations for auto sales growth in China in 2019.”

And in Western Europe, October’s sales decline of -7.5% y/y continued to unwind the August surge in purchases in the European Union ahead of the arrival of new emission standards in September. “But on a month-on-month seasonally adjusted basis, sales returned to trend with a 24% surge after September’s 41% month-to-month slump,” Scotiabank said. “Overall economic conditions in Western Europe remain supportive of a mild expansion in auto sales, with vehicle purchases in the region rising by 2.1% y/y year to date exclusive of the UK, where sales have fallen by 7.2% y/y year to date. Alongside the softening economic expansion on the Continent, sales are expected to stabilize in Western Europe in 2019 around current levels of 14.50 million units annually.”