In the next seven years the light vehicle market is expected to grow at a rate of 2.6% per annum, taking the total number of cars sold past the 100 million mark. While China is expected to see a slowdown of growth, from 16% annually to 4% over the coming period, Europe will finally get out of its slump to grow 2.2% per year, while at the same time, Brazil and Russia will have to deal with structural over capacity.
In a recent research from AlixPartners, the consultancy explores the state of the global automotive industry. The advisors finding that between 2007 and 2014 the global light vehicle market enjoyed modest annual growth of 3.1%. In absolute terms, the number of light vehicle sales have risen from 69.7 million in 2007 to hit 86.4 million in 2014. There has been significant variation across regions however. Europe, suffering one of its most severe slowdowns in recent memory, lost 2.8% annually in the same period, dropping from 22.3 million units to 18.3 million units. At the same time, sales for light vehicles exploded in China, with the country adding 8.3 million cars in 2007 while seeing 23.6 million drive away in 2014. North America witnessed a very small increase of 0.4% growth, or 0.5 million more units in 2014 compared to 2007.
As part of the research, the consulting firm forecasted the number of units expected to be sold between 2014 and 2021. The total market is expected to continue to grow modestly at 2.6%, reaching more than 100 million units globally by 2021. Most regions are expected to see slowdowns in sales, with the major exception of Europe which will see growth of 2.2% rather than continued contraction. Greater China is expected to see a significant slowdown, dropping to 4.3% over the coming 7 years. Japan/Korea is expected to see a contraction of -2.0%.
Europe’s negative trend, at -2.8% over the past seven years, is expected to finally pick up – however, certain regions like West Europe will remain low growth areas. The biggest growth areas according to the analysis will be central and south Europe, with 5.3% and 4.5% growth respectively. East Europe is expected to enjoy growth of 3.7%. In terms of units added to the road, West Europe will see 0.5 million more units on 2014’s 11.1 million units, while South and East will see 1.1 million and 1.3 million units on the road on top of the number of units sold in 2014.
Chinese growth engine
China on the other hand has seen only growth in the past seven years, with drivers picking up 23.1 million units in 2014 compared to 8.0 million in 2007. Going forward, the market is not expected to continue growing as fiercely however, partly due to saturation, partly due to a Chinese economy which is losing steam, forecasted to grow 6.8% annually in the same period. The Chinese market is still expected to expand at 4.1% per year, with the region adding 9 million units by 2021. One effect of the slowdown according to the consultancy is that it will increase price pressure in the Chinese auto market and put a squeeze on the margins.
From a production perspective, AlixPartners highlights that Russia, Brazil and, to some extent India, are expected to be hit by structural over-capacity in the coming years. The downturn in Russia, resultant from the sanctions and the lower price of oil, as well as devaluation and rising interest rates, has depressing consumer spending and new car sales. In Brazil taxes and interest rates continue to go up, while its currency devalues and consumer spending remains low. These factors are contributing to the overcapacity of cars in the respective markets, with the authors seeing overcapacity to build up in the BRIC emerging markets. In Brazil utilization levels could drop to 50% or even down to 35% in the case of Russia.