World auto sales growth stalls in 2018: Scotiabank

World vehicle sales in November declined for a third consecutive month in year-on-year (y/y) terms owing to a steep contraction in auto sales in China, a weakening of economic conditions in Western Europe, and a slow, but steady, decline in purchases in the U.S.

According to a new report from Scotiabank, November’s 7% y/y decline in global auto sales brings the year-to-date total sales on par with the figure recorded during the same period in 2017.

Vehicle purchases in Canada in November fell below 1.9 million annualised units for the first time since late-2016, Scotiabank’s latest Global Auto Report said; sales are, however, still on track for their second-highest year on record in 2018.

In November, Canadian vehicle purchases fell just below 1.9 million annualised units for the first time since late-2016 owing to a decline of 4.5% month-over=month (m/m) in seasonally-adjusted terms. “Sales also posted their sharpest year-on-year drop since 2009, at 9.4% y/y, although this drop follows the third highest-ever monthly total last November,” Scotiabank said. The new auto market’s year-to-date (ytd) contraction of 2.3% y/y is driven by particularly poor sales of Fiat-Chrysler (FCA) automobiles, Scotiabank said, which have fallen by close to 15% y/y ytd compared to a rest-of-the-market decline of 0.5% y/y ytd. “Furthermore, across the totality of the market, rising fleet vehicle sales have offset a bigger decline of 2.5% y/y ytd in retail purchases so far in 2018.”

In the U.S., despite a 0.5% m/m fall in auto sales, November’s sales of 17.4 million annualised units prolonged a strong three-month string of 17.4+ million deliveries on the back of robust fleet demand and end-of-year offers. “However, last month marked the first November year-on-year decline since 2009 in the U.S., at 0.7% y/y.” Scotiabank said. “We expect sales to fall below 17 million annualised units in the last month of 2018 for an annual average of 17.1 million tied with 2017’s second-highest-ever total.”

Scotiabank forecasts U.S. vehicle sales to fall from 17.1 million in 2018 to 16.8 million in 2019 owing to moderating employment gains and rising borrowing costs. “Although we project the U.S. economy to continue to expand at a solid, above-potential, rate of 2.4% in 2019 – aided by late-cycle fiscal stimulus by the Trump administration – labour markets have approached full employment with the jobless rate at its lowest point since the late 1960s. Bank lending rates on new autos have also edged up to a seven-year-high near the 5% mark.”

In Mexico, Scotiabank said, market weakness persists, as double-digit auto lending rates and broader policy uncertainty continue to discourage auto sales in 2018 with purchases down 5.4% y/y in November for a ytd decline of 6.7% y/y. “We expect new auto sales to decline further in 2019, as interest rates and still-high inflation price would-be buyers out of auto dealerships and toward the used car market,” Scotiabank said.

The economic slowdown in China brought on by a government-led crackdown on excessive lending and, more recently, the economic uncertainty boiling from U.S. trade tensions has led to a severe slump in auto sales in the country. Vehicle purchases in China fell by 13.9% y/y in November for a total year-to-date decline of 1.8% y/y ytd. “We forecast auto deliveries in China to contract by close to 2% in 2018 for their first annual decrease since 1999, before posting only a mild expansion next year on the back of stimulative economic policies by the Chinese government and still relatively-low vehicle penetration in smaller non-coastal urban centres,” Scotiabank said.

Japanese auto sales, meanwhile, have posted two consecutive months of strong year-on-year increases and are on track to record a third consecutive year of rising sales in 2018, the first such a streak since the mid-90s. “Although new vehicle sales still remain well below those seen in the 1990s amid an ageing population and subdued economic growth, the Japanese auto market has remained steady with between 3.2 million and 3.4 million units sold annually across the post-financial crisis period,” Scotiabank said.

In Europe, sluggish economic growth across the Euro Area core and the UK has begun to show in softer-than-anticipated sales figures. “In Germany, the largest auto market in the region, GDP contracted for the first time since 2014 due to falling household consumption and the country’s sharpest fall in exports since late-2012,” Scotiabank said. “Sales in Western Europe excluding the UK are forecast to eke out a slight gain of around 1% this year, compared to a drop exceeding 7% in Britain. This is expected to combine for a decline of around 0.2% across all of the UK and Western Europe compared to 2017’s levels, while vehicle purchases look set to remain flat in 2019 at current levels of close to 14.30 million units delivered.”

And in Latin America, Brazilian vehicle purchases recorded their seventh double-digit year-on-year increase for the year in November at 12.2% y/y – for a cumulative ytd surge of 14.2% ytd – following the country’s strongest quarterly economic expansion in the third quarter since early-2017. “Auto sales [in Brazil] are forecast to rise by an additional 6.0% in 2019,” Scotiabank said.  “Auto sales in Chile recorded their first year-on-year dip since April 2016 in November at -2.7% y/y, though this followed the highest-ever October sales numbers on record. We expect annual vehicle sales growth to slow to around 8% in 2019 as the pace of economic expansion in Chile ticks down to 3.2% next year.”