China leaping ahead Europe in auto industry thanks to government stimulus says PricewaterhouseCoopers

London, 26 OCT 2009‑Although the 2009 outlook for established regions of North America and the European Union is stabilising, China’s remarkable advancement in a downturn has prompted an upward revision to PwC’s AUTOFACTS global assembly topline. Looking into 2010, uncertainty around the strength of economic fundamentals and the scope of government influence will persist.

Steve D’Arcy, global auto leader, PricewaterhouseCoopers says:

“The global automotive sector continues to generate surprises in 2009.  At the year’s outset, our expectations for China’s industry development, and indeed consensus opinion, was for a period of sideways movement – certainly not the “great leap forward” that has subsequently been witnessed.”

“Given the toughness of the US and Japanese markets, China will supplant perennial assembly leaders and become the No.1 light vehicle manufacturing country in 2009 – a position that will only be relinquished in the future under extraordinary circumstances.”

“Our Q1 lateral prognosis for Chinese light vehicle assembly suggested a likely outcome of some 7.6 million units, but the success of the central government’s stimulus programme (see Analyst Note dated August 24, 2009 for details) in igniting sales in China’s interior markets has driven our latest Q4 forecast above initial projections by 2 million units.”

While much confidence can be given to China’s future prospects, uncertainty still clouds the outlook for other major vehicle producing countries in 2010. 

North America

2009 played witness to immense industry turmoil characterised by massive volume decreases, capacity rationalisation, non-core asset disposals, and wide-spread bankruptcy, causing monthly sales SAAR to hover between 9.1m and 9.9m units with the exception of July’s 11.2m and August’s 14.1m CARS-related spike. Assembly is expected to bottom in 2009 as lingering recessionary trending pushes volumes to an historic low of 8.3 million units.

As the North American market begins its long road to recovery, initiatives to reorganise, recapitalise, and reinvent to meet new market realities present a significant opportunity for the domestic industry to forge a new identity beginning in 2010.

European Union

After the turmoil of the past twelve months, the EU appears to be in a period of relative stability.  However, this is superficial and likely to be short-lived as the light commercial vehicle (LCV) sector is still facing dramatic falls in demand and output, reflecting continuing economic weakness and uncertainty. Additionally, in the coming months, the impact of funding running out within many of the scrappage incentive schemes will be felt. This, and the current lack of clarity over scrappage renewal in the region, poses a new challenge for 2010.

Therefore, it is likely that the EU will see a decline in overall new car sales in 2010, but this should be partially offset by some positive developments.

Eastern Europe

East Europe continues to suffer the fallout of the global economic decline. Automotive, having been one of the key beneficiaries of the boom, is feeling the pain in particular. The regional giant, Russia, has seen new car sales fall over 50% year-on-year.

Domestic OEMs (in Russia) are struggling disproportionately, and new product emanating from tie-ups with western OEMs cannot come soon enough.  The struggles of Russia alone will see domestic output halve in 2009 to 735,000, contributing to a regional decline of 44% to 1.85 million.  Given such a precipitous fall in 2009, it will not be until 2012 when the region returns to the 2008 level of production.  

Developed Asia Pacific: Japan and Korea

Developed Asia Pacific is still recovering from the steep decline in exports witnessed earlier this year. As major export markets regain sales momentum, so will the exports from the region. On the other hand, the domestic markets of Japan, South Korea, and Australia have also underperformed for most of 2009.

Developing Asia-Pacific: China and India

As has been well documented, developing Asia Pacific, particularly China, has performed remarkably well in 2009. The Chinese market has responded to the bold initiatives instituted by Beijing with YTD sales up nearly 35%, while the Indian market has also reversed its declining trend to post a growth of 8% through August. Assembly and sales growth in both markets has strongly benefitted domestic automakers, in part due to specific government incentives as well as stabilisation in the overall economy. However, smaller markets in Asia Pacific are yet to return to normal levels of demand.

South America

The early success of government incentives combined with a strengthening economy in 2009 has led to record-breaking sales in Brazil – up 3.4% YTD although assembly is down 8.4% due to a 41% decrease in export volume. Despite near-term sales growth, questions remain around how the market will perform once higher sales taxes are progressively reinstated. Brazil’s economy appears to have emerged from recession, which offers hope for the fundamentals that underpin vehicle demand. Presently, our forecast indicates an annual assembly growth rate of 6% from 2010 onward – a trajectory more in line with projections for BRIC growth despite remaining export risk.

Steve D’Arcy, global auto leader, PricewaterhouseCoopers says:

“With recessionary pressures easing, the focus will likely shift to impending economic recovery and whether it will be of sufficient strength to underpin vehicle markets without further government support.  Without government influence, a double-dip recession for some vehicle markets is possible. EU countries certainly seem cognisant of this threat and are either considering extending scrappage schemes or have begun implementing extensions due to the automotive industry’s economic importance. ”

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