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Global and European Auto Market Outlook

This is the first part of an exclusive  report, made in collaboration with MisterGreen Electric Lease.

The state of the global auto market 

On a global level, demand for light vehicles seems quite robust. As of August 2014, over 85.7 million light vehicles have been sold (Figure 1). According to projections made by LMC Automotive in October 2014, we can expect total light vehicle sales to reach 86.9 million units by the end of the year, representing a 2.96% year-over-year increase in worldwide sales. 

Figure 1: Global light vehicle sales, in millions. (Source: LMC Automotive)

Looking at the bigger picture, the upward trajectory of global auto sales is remarkable. In 2007 global light vehicle sales peaked at 70 million units, and as stated earlier we can expect roughly 87 million cars to be sold in 2014. This translates to a year-over-year growth of 3.15% in global auto sales in the period of 2007-2014. This is especially impressive if we consider the challenging market environment stemming from the 2008 financial crash and the lingering Euro crisis. 

A decomposition of global auto sales by region (Figure 2) shows that the lion’s share of this growth has been fueled by demand from the United States (US) and especially from China, where car sales have almost doubled since 2009. This robust growth is in stark contrast with European auto demand, which has been pressured heavily over the past years due to the Euro crisis. Although they are not as dramatic as the European figures, sales in Asia’s developed countries (Korea and Japan) have been quite lackluster and are flat over the same period.   

Figure 2: Decomposition of global auto sales by region (Source: Robert W. Baird & Co)

As one can deduce from the data, we see that the European auto market has been quite harsh over the past years. In 2007 over 16.84 million cars were sold in Western Europe. LMC Automotive estimates that car sales will total roughly 12.1 million units by the end of 2014, signifying a staggering collapse of nearly 29% over this period and the lowest car sales since 1993. A detailed breakdown of car sales per country (Figure 3) shows that Spain and Italy have suffered the most. Remarkably, car sales in the United Kingdom have recovered strongly and annual sales are currently at levels comparable with the 2007 peak. German premium brands have also weathered the crisis relatively well, with annual sales being only 12% lower than the 2007 peak.

Figure 3: Decomposition of European auto sales by country vs peak demand (Source: Robert W. Baird & Co) 

An overview of the Western European passenger vehicle market share by brand (Figure 4) shows that Volkswagen has increased its market share strongly since 2008 and is now the leading brand in Europe. The only other significant consumer brand to expand its presence is Renault. All other brands, including PSA Peugeot Citroën, General Motors, Ford and Fiat, have lost ground over this time period. 

Figure 4: Overview of Western EU passenger vehicle market share by brand (Source: Robert W. Baird & Co)

Detailed forecast for European and Dutch car sales

Current projections for European car sales are uninspiring relative to global demand. The reasons for this are manifold. Most importantly, the immediate term economic outlook for Europe and the Netherlands is quite mixed. A basket of tactical macro-economic forecasts for the Eurozone and the Netherlands illustrates this clearly (Figure 5). The macro-economic forecast depicted in Figure 5 is a consensus average forecast, which is calculated by compiling the expectations of 18 different investment banks. This makes the forecasts relatively more accurate than those of individual institutions. 

Figure 5: Consensus forecast for select macro-economic indicators as of September 2014 (Source Focus Economics, Nyenrode) 

According to these projections, Eurozone GDP will grow by only 0.9% in 2014 and 1.5% in 2015, while the Dutch economy will muster a meager GDP growth of 0.4% and 1.4% in 2014 and 2015 respectively. These uninspiring expectations are further complicated by a stubbornly high unemployment rate in the Eurozone and the Netherlands, which is projected to decrease quite slowly in the coming years. On a positive note, the ECB has announced a new round of stimulative measures which will hopefully strengthen the ailing European economy. Furthermore, consumer confidence has been surprisingly strong in 2014 and according to the projections in Figure 5, consumption is set to increase strongly in both the Eurozone and the Netherlands. Lastly, investment demand is also projected to grow in the coming years. 

All in all, these tactical macro-economic indicators paint a mixed picture for the European and Dutch economy. Although this economic environment is somewhat supportive for automotive sales, it is far from optimal. Because of this rather uncertain economic situation, there is wide disparity in the forecasts of European auto sales. In order to give readers the most comprehensive picture possible, we will review the expectations of three different institutions.  

The most optimistic forecast comes from the automotive consultancy company LMC Automotive. According to their latest forecast, published in November, they expect full-year Western European car sales to total 12.11 million units in 2014 and 12.45 million units in 2015. Subsequently, they expect car sales to steadily increase towards roughly 16 million units by 2021 (Figure 6). According to their analysis there exists a realistic possibility that a sustained economic recovery in Europe could provide a cyclical boost to car sales and release pent-up demand from consumers, who postponed purchases due to unfavorable circumstances. Furthermore, they expect a more rapid increase of auto sales in Central and Eastern Europe due to favorable demographics and increased motorization. According to their projections auto sales in this region will increase from 4.4 million units in 2014 to over 6.6 million units in 2021.  

Figure 6: European light vehicles forecast (Source: LMC Automotive) 

Investment bank Robert W. Baird is less optimistic with its projections. Their analysis uses new car registrations in the EU-27 countries as a proxy for demand. According to their projections, European light vehicle registrations will remain well below the “normalized demand” we saw over the past few decades (Figure 7). Baird forecasts that new registrations will total 14.5 million units in 2014 and 14.7 million in 2015. They envision a slow increase to roughly 15.3 million new car registrations by 2017, which translates to an average yearly growth rate of just 1.8% for car sales in the EU 27. Furthermore, this projected demand is significantly lower than the peak of 18 million new registrations recorded in 2007.

Figure 7: EU 27 light vehicle registrations - Annual Units from 1995-2017E (Source: Robert W Baird) 

An extremely detailed and comprehensive research report by the investment bank HSBC paints an even more worrisome picture for the European car market. In their extensive 178-page “Global Autos” report, published in September 2014, HSBC uses an extensive model of 10 different parameters to forecast the long-term car sales growth potential of over 35 countries. A short overview of the parameters used in HSBC demand model is described in Figure 8. 

Figure 8: A brief overview of the parameters used to assess the long-term car sales growth potential of countries (Source: HSBC) 

Based on the scoring of these individual parameters, HSBC calculated the aggregate country scores, which they in turn used to forecast the long-term volume growth potential of individual countries and regions. In summary, they came to the conclusion that all major Western European countries have a relatively poor demand outlook. In aggregate, they expect the absolute sales of cars in Western Europe to increase by only 1.3% per year in the period of 2013-2020 (Figure 9). It is worth noting that the European forecasted sales growth rate is higher than that of North America, Japan and South Korea. In contrast to the lackluster sales expected in Western Europe, neighboring countries in Central and Eastern Europe will experience tremendous sales growth. According to the forecasts in Figure 9, Central European auto sales will increase by over 6.7% a year between 2013 and 2020, which is bested only by India. Eastern Europe will also experience an impressive growth of 4.4% a year during this period.  

Figure 9: Light vehicle sales growth by region in y-o-y % (Source: HSBC)