In the third quarterly update of Euromonitor’s new light vehicle sales forecasts, the biggest news is that the 2016 global growth outlook has been revised downwards to just 1.2%, which would be the slowest growth since the great Automotive recovery commenced in 2010.
However, this is not unexpected given that the downside risks always outweighed the upside potential, as discussed in the Q1 forecast update.
Increases in Europe negated by numerous forecast downgrades - and not just in Brazil and Russia
There were further notable upward revisions to the sales forecasts for most European markets as the recovery maintains its momentum but these were easily negated by understandable further downward revisions in Russia and of course in Brazil too, given recent events. However, the outlook for India and Japan has also been cut for different reasons. In India, the long-awaited recovery finally kicked in in 2015 and three successive interest rate cuts in January, February and March would normally be reason to upgrade the forecast but new pollution levies have been introduced, resulting in a downward revision of 90,000 units compared to the Q1 forecast for 2016. Essentially, petrol cars less than 1200cc are subject to a 1% levy, diesels less than 1500cc a 2.5% levy and larger diesels are subject to a 4% levy. Furthermore, there is an additional 1% levy on cars costing more than 10 lakh (i.e. 1 million rupees, approximately €13,000 or US$15,000). In Japan, the tax hike proposed for April 2017 would ordinarily pull demand forward into 2016 but the earthquake in April has hurt supply which will in turn negatively impact sales, which are now pegged to decline by 3% in 2016. Indonesia, South Africa, South Korea, Thailand, Taiwan, Turkey and Vietnam have all been revised downwards too but to a lesser extent, with a reduction of no more than 60,000 units in any market.
However, there are some bright spots
The key bright spots in Western Europe are Spain and Italy, the 2016 forecasts for which have been increased by 165,000 and 170,000 units respectively. In the case of Italy, I always maintained that as sales still remain so far short of their peak, the recovery still has a long way to go. Improving economic growth, employment and consumer confidence are driving demand in 2016 but so too are the recent net new additions of the 500X and Tipo to FIAT’s range as well as the updated version of the 500 city car. In the case of Spain, demand continues to be robust as the PIVE inventive plan does not expire until July but with the country in its second year of post-crisis economic expansion, a reasonably soft landing is assumed and car sales growth of 5% is currently predicted for 2016. Another noteworthy positive is the turn-around in Argentina. The price threshold over which cars are subjected to luxury car tax has been raised and the rates significantly lowered and this is now translating into positive year-on-year gains. Accordingly, the light vehicle sales forecast for 2016 has been increased by 35,000 units; annual growth of 6% y-o-y is thus anticipated.
Finally, the renewed sales momentum continues in China due to the tax breaks introduced towards the end of 2015 and y-o-y growth rates are likely to improve in the coming months compared to the weak base in the summer of 2015. However, they will undoubtedly also slow again compared to the higher base towards the end of the year and the forecast remains unchanged in this round although there is still undoubtedly more upside potential to downside in 2016.
The upshot is that there are further downside risks, especially in Brazil and Russia, but upside potential remains in China and Europe. Nevertheless, it seems inevitable that 2016 will witness the slowest growth in global auto sales since 2009. The full annual update is scheduled for July 25.