Global Sales: A Mixed Bag

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Global sales flatten as the market adjusts.

After last year’s frantic sales pace, it looks like we’re seeing things flatten out. Global auto sales growth slowed markedly in July, due mainly to year-on-year declines in the United States, Canada and China, along with a sharp drop in India, and continued contraction in Mexico.

In Canada, auto sales fell in July by 3.6 percent, the sharpest drop in nearly two years, while a 1.6 percent contraction in August marked six months of declines despite the strength of Canada’s economy. The fall might have been even sharper, but double-digit increases in fleet sales helped to offset large declines in retail sales.

Still near record highs

While employment growth has slowed this year, wages are expanding at a solid pace, and the unemployment rate sits at its lowest level in over a decade. The ratio of new vehicle sales to prime-age population is still near record highs, but at the same time, rising interest rates may be restraining Canadian households from big-ticket purchases. So far, in the first eight months of 2018, vehicle sales have declined by 0.9 percent compared with the same period in 2017. That’s in line with our expectations of a slight decline in sales in 2018, after we saw such record levels last year.

Ontario posted a slight y/y increase in sales in July, a province that accounts for over 40 percent of vehicle purchases in the country. Alberta and British Columbia, which combined account for over a fifth of the Canadian auto market, fell by over 10 percent in each province. For BC, that’s the steepest contraction since 2009, and marks a considerable reversal from 2017 when auto deliveries expanded by 7.1 percent, and mirrors the province’s substantial early slowdown in household spending. With employment and consumer expenditures expected to fall, along with rising borrowing costs and limited housing affordability, we anticipate BC’s auto sales to decline in 2018 after a rise of 6.9 percent last year.

Alberta shows a similar pattern, since the province saw sales growth of 11.4 percent last year. This year, we are seeing a contraction from last year when auto sales were driven by a strong economic recovery, and from buyers replacing vehicles lost in the Fort McMurray fires.

South of the border, a massive gain of 5.3 percent y/y in June in the United States was offset by a drop of 3.4 percent in July, and relatively flat sales in August. With 16.6 million units sold in annualized terms in the first six months of 2018, we see the first occurrence of back-to-back sales of fewer than 17 million annualized units since August 2017. Some of this may be due to inventory drawdown. Dealer stock of the Ford F-Series truck, the top seller in the US, fell to 70 days’ supply at the end of August; a year earlier, it stood at 83 days. Likewise, the Chevrolet Silverado lost its second-place spot as inventory of 2019 models failed to meet demand.

NAFTA uncertainty

Falling auto sales in Mexico in August marked a drop of 15 consecutive months, as the industry faces slow growth in real wages, along with high lending rates. Other factors included the uncertainty of NAFTA renegotiations and a July presidential election that may have affected consumer confidence. However, real earnings have ticked up for the first six months of this year after 13 months of back-to-back declines and this, along with an agreement between Mexico and the US on NAFTA (now known as the USMCA) could lift vehicle sales in the last third of 2018.

The numbers varied globally. In South America, Brazil saw double-digit gains y/y in July and August, following a couple of months of lacklustre growth fed by trucker strikes over fuel prices, and resulting delays in manufacturing deliveries. In Argentina, the economic downturn has created a steep reduction in demand for Brazilian-made automobiles, and auto sales overall fell by a third y/y in each of the months of June, July, and August. Chile’s sales rose by single digits in August for the first time since December 2017, and its relatively strong economic growth should continue to support robust gains for the rest of the year.

New emissions standards

Europe saw a sales surge in July and August. New EU emissions standards took effect on the first of September, and dealers worked to empty their lots of vehicles that wouldn’t meet them. We expect sales to correct in September as these incentives run out. Italy and the UK showed softer sales, while France, Germany and Spain registered large increases.

In China, sales declined y/y in July for the first time since May 2016, likely due to certain automakers pulling in imports ahead of high tariffs, but which didn’t align with customer preferences. India, meanwhile, saw 38 percent growth in June but only 1.1 percent in July, mostly due to a trucking strike that reduced vehicle deliveries on top of inventory clearances prior to new-model introductions.

Overall, despite Canada’s weak sales performance, we are still anticipating the second-highest sales on record for 2018.

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