Global Auto Market OutlookNomura’s “weather-forecast” assessment of automakers' profit prospects by market.
U.S. Autos: Recovery Through 2014The U.S. light vehicle market should continue its V-shaped recovery till 2015, driven by healthy replacement demand and growth in the driving population. A post-crisis trifecta of favorable conditions: pent-up demand, easy credit and a tight used car market has led to continued strength in underlying new vehicle demand. From an overall market perspective, Nomura analysts think 2012 will end up being a year of “normalization.” 2011 had too many ups and downs – the biggest of which was the impact from the Japan quake – that makes comparisons with 2012 so far, quite difficult. However, one obvious theme that is being played out this year is the return of the Japanese original equipment manufacturers, or OEMs, to the market in full force with replenished stocks. As a result, analysts expect the Japanese OEMs to gain back some, though not all of the market share that they lost to the other players in the market.
Europe: Luxury / Premium Segment Has Bounced BackThe European auto market continues to be challenging for most global automakers operating in the region. However, the ongoing slowdown in European vehicle sales has not affected all segments of the market equally. The luxury / premium segment has bounced back smartly after a sales dip seen in the immediate aftermath of the crisis in 2009. As a result, the share of the luxury / premium segment has grown to 19 percent of the overall passenger car market in the first six months of this year, up from a 2-percentage point drop to 15 percent in 2008 and higher than the 16 percent level seen in pre-crisis 2007.
China: Foreign Brands Dominate The MarketThe Chinese auto market has significantly outgrown China gross domestic product growth due to the relative size of the auto market. Today, the market is as big as developed countries and analysts estimate the gap between China auto sales growth and China GDP will likely narrow. As foreign brands enter the market via joint ventures with local automakers and imports, domestic brands have grown to gain market share from only 17.9 percent in 2000 to 29.7 percent in 2011. Some of these automakers such as Great Wall, Geely, and BYD, have become competitive in both the local market and overseas. The top seven brands, which make up 47 percent of the Chinese passenger vehicle market, are still dominated by foreign brands. However, with the growing market share of domestic brands, analysts believe domestic players are gradually taking shape as well.
Japan: Good Times Are OverIn Japan, the government's eco-car subsidies have supported a favorable environment but the allotted subsidies look likely to run out at the end of September. Honda Motor Co Ltd (TYO: 7267) has been posting particularly strong growth in sales of mini vehicles and there is a growing risk of market contraction after the eco-car subsidies are withdrawn, will result in even fiercer competition between automakers and lower margins.
Korea: Marginal Recovery In 2013Analysts estimate 2013 auto demand to recover slightly to reach 1.5 million, or an increase of 2 percent, driven by pent-up demand for new models and customers wishing to enjoy the reduced tax for European cars.
India: Growth To Slow Down In 2012-13In line with the slowdown in GDP growth, India’s passenger car segment -- which accounts for two-thirds of the auto market – will likely see weak demand.
Indonesia: Growth ContinuesIndonesia car sales continue to hit a new high despite government efforts to tighten underwriting standards for car loans through a higher down payment requirement. Analysts believe car sales in Indonesia are set for sustainable strong growth in the long term, driven by the country’s low car ownership rate, rising affordability and young population.
Global automobile demand will continue to rise despite marked disparities between regions, according to Nomura analysts. Auto sales volumes will likely climb 6 percent year-over-year in both 2012 and 2013, after rising 4 percent in 2011.
The disparities in demand, which will likely materialize in the major global markets, could result in variability in the near-term earnings of automakers, depending on their regional sales weightings.
Amongst the industrialized economies, analysts expect the U.S. to continue to provide automakers with solid earnings growth. Unit sales are rebounding off exceptional weakness to regain the 16 million level. With production capacity expanding only gradually after cuts of around 3 million vehicles led by the Detroit Three - Ford Motor Company (NYSE: F), General Motors Company (NYSE: GM) and Chrysler Group LLC -- in the wake of the financial crisis, incentives are also being held down.
In stark contrast, Europe is seeing a simultaneous contraction in volumes and intensifying price competition amid a lack of progress in cutting capacity despite demand falling for five straight years through 2012. The market is expected to remain difficult for most global automakers given uncertainties over whether they will be able to push through plant closures and layoffs in the face of political and social resistance.
In Japan, the government's eco-car subsidies have supported a favorable environment but the allotted subsidies look likely to run out at the end of September. Analysts expect a sharp reactive decline in demand and deteriorating market conditions over the October-December period, followed by gradual improvement thereafter.
In Korea, sales recorded a temporary decline owing to the strike at Hyundai Motor Co (KRX: 005380) and Kia Motors Corporation (KRX: 000270), but analyst expect steady improvement from here on as supply returns back to normal and tailwinds from the launch of new models including the Kia K3 (Forte).
Among the emerging markets, conditions in Thailand and Indonesia are particularly good -- both countries have entered a phase of full-fledged motorization as their middle classes have grown amid ongoing economic development. With Japanese automakers having around 90 percent of both the markets, competition is milder than in other emerging markets crowded with makers from Japan, Korea, the U.S., and Europe.
In Thailand, analysts expect growth to slow following the December 2012 end to tax rebates for first-time buyers, but still anticipate favorable market conditions to continue in 2013.
In Indonesia, there has been almost no sign of any impact on autos following the introduction of new rules for loan down payments in June, and analysts expect market growth to be boosted by the upcoming launch of the government's Low Cost Green Car project.
In China, demand growth has lagged capacity expansion, which has led to some excess capacity. Dealer inventories have recently reached 80-85 days, well above the 45-60 day level which Nomura analysts regard as a sound level. Amid expanded discounting by dealers, automakers are incentivizing dealers to maintain sales while also stepping-up their own sales promotions. Automakers will likely leave cutting back sales volumes as their last tactic to reduce excess inventories and margins are likely to deteriorate somewhat industry-wide. From a longer-term perspective, analysts expect a low vehicle penetration rate, exports growth, and emergence of the second-hand market to further fuel demand growth. As a result, they are more optimistic about 2013 market conditions.
In India, as in China, automakers' margins are under pressure. While analysts expect ongoing firmness in some segments such as utility vehicles and light commercial vehicles, supported by new model launches, in the passenger car segment - which accounts for two-thirds of the auto market (excluding large commercial vehicles) - they expect weak demand amid deterioration in the macro environment and rising fuel prices.
In Brazil, demand has recently received a temporary boost from a reduction in the tax on Industrial Products for auto purchases, but if the tax break ends by end-October, market conditions could deteriorate.