Auto Report: Global Sales Still Falling

Vehicle sales by region (Photo: Scotiabank)

There a re some bright spots, but they may be temporary. 

We’ve been watching the volatility of the global economy, and September didn’t make things any better. In that month, global sales dropped by 2.7% yearover- year, marking the thirteenth consecutive month of decline. To the end of September, global auto sales were down 5.8% y/y.

Central banks are stepping in to spur growth in most of the major economies, and we expect to see a floor under the decline thanks to resilient consumer spending, but it will not fully offset the damage from the persistently volatile global trading environment. This unprecedented uncertainty generally traces back to the United States and its erratic trade policies under the current administration. Overall, there has been a near-universal pullback in manufacturing, trade, and industrial production around the world.

In Canada, sales dipped by 3.9% y/y in September. Fleet sales were mildly positive and only provided a small offset to the decline in retail performance. Some of the issues with the numbers included a spike in the cost of financing, and positive signs of strength in the Canadian economy that are helping some sectors but not having much effect on auto sales. Luxury autos grew by 2.4% y/y for the second month in a row, but that comes after fourteen months of decline, and a luxury sales tax might be on the horizon. Overall, Canadian auto sales are forecast at 1.94 million units for 2019.

Among the regions, Atlantic Canadian auto sales dipped by about 3% y/y; Western Canadian provinces fell by more than 9%; while Ontario and Quebec, partially insulated by job growth, dropped by only 0.5% combined.

The U.S. drops but expect a rebound
Coming off a surge of 10.5% y/y in August, the U.S. fell by 11.3% in September. Still, we expect it to rebound from what are mostly transitory headwinds, and we maintain our forecast of 17.0 million units for 2019.

September’s drop was against a backdrop of a fresh round of tariffs on Chinese imports, and that country’s response of a lawsuit filed with the WTO; the uncertainty of presidential impeachment; pressure in short-term funding markets; and a strike at General Motors that kept production of some 300,000 vehicles out of the market, including high-demand SUVs and pickup trucks.

The rebound should come from such factors as a Federal Reserve rate cut in September, with two more expected by early 2020 for a cumulative full percentage point; and a 50-year low in the unemployment rate and with record high household net worth.

In Mexico, September’s sales fell by 12.1% y/y. The country’s economy is toeing the line of a recession, following three quarters of flat growth. Both the global environment and Mexico’s domestic policies are having a negative effect on business and consumer confidence, and a September budget suggests that additional spending cuts may be needed to reach fiscal targets. The country’s outlook for 2020 remains weak as well.

Shaking up electric vehicles in China
In the Asia-Pacific region, China’s auto sales continued an unprecedented decline, dropping by 6.7% y/y in September. That marks 15 consecutive months of decline in a market that had been growing robustly since the 1990s. September is usually a very strong sales month in China, but softening domestic decline and the crippling trade war with the U.S. held everything back.

New-energy vehicles (NEV) are having a shakeup in China. Government policies helped them reach 5% of all new-vehicle sales at their peak, but they fell for the third straight month in September. There are some 500 aspiring NEV companies and so the government aims to target its support, including cutting NEV subsidies by as much as half.

Ahead of an October 1 sales tax hike, Japanese sales rose by almost 13% y/y, but the tax should drag consumer spending down for the rest of the year. In India, a drop in private investment and a banking crisis that constrained credit access led to a 24% y/y plunge in September. With so many unsold cars, many of the country’s automakers enacted temporary plant closures. Government policies to reignite growth have done little for the auto sector.

Sales surges in Europe likely won’t last
Europe saw some sales surges, including 22% y/y in Germany and 17% in France, along with 1.3% in the U.K., but we’re not reading much into these. These figures are in comparison to September 2018, when the European Union enacted tight emissions regulations that resulted in a sharp drop in sales back then.

There’s a different story in the September sales rate, where almost all major European economies saw a sharp pullback in the SAAR, including a 31% m/m retreat in Germany, which represents about a third of the regional market.

South America reported a 9.9% y/y increase in September, although Brazil’s continued strength is more a recovering market than a booming one. Peru was strong with a 20% uptick, and Columbia posted a 5.4% increase, but Chile’s sales fell by 3.4% and its outlook is weak.

It’s going to be an interesting time as the global market moves into the last quarter of the year

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