Global auto sales set to reach 93.5 million in 2017, but market risk is greater than ever

Middle East region forecast to stabilize, supported by oil prices and the end of Iranian sanctions

Total 2017 global light vehicle sales will reach 93.5 million units, a growth rate of 1.5 per cent over 2016, according to the most recent forecast from IHS Markit.

However, industry risk in mature markets is at the highest level it has been since the Lehman Brothers collapse and global industry downturn from 2008 through 2010, and will be a key factor for the near future.

Engine propulsion options are expected to have an influence as well.

“Political uncertainty could cause a significant rift in light vehicle sales both in the U.S. and Europe, as both regions are undergoing fluctuations in policy, leadership and other dynamics,” said Henner Lehne, senior director, global vehicle group for IHS Markit.

In addition, IHS Markit forecasts in 2017 the decline of diesel vehicle sales share in Europe will further accelerate more than the European light vehicle market has experienced in the last decade.

This represents just the start of a growing trend of diesel decline expected in the coming years, due in part to significant challenges around RDE regulation alongside the arrival of the EU6d emission standards.

Despite the daily publicity, sales of BEV (battery electric vehicles) and PHEV (plug-in hybrid electric vehicles) light vehicles also were relatively flat between 2015 and 2016, according to IHS Markit analysis, despite the ever-present longer-term growth fundamentals.

Global BEV production remains significantly below 1 million units and will represent just 0.7 per cent of new vehicle supply globally in 2017, according to IHS Markit forecasts.

The majority of global growth can be attributed to a revised Chinese automotive legislative regime, as Chinese-targeted auto excise duty incentives are expected to continue through 2017, albeit at a lower rate of 7.5 per cent for qualifying vehicles (up from 5 per cent in 2016).

Provisional figures analyzed by IHS Markit suggest that China accounted for approximately 76 per cent of the 2016 volume growth in global auto sales, with December being the last month of a full-tax break stimulus program.

The mature markets, together with China, were key to the overall 2016 automotive growth story, according to IHS Markit, with provisional 2016 year-end total industry volumes set at 92.1 million units globally, up 4.6 per cent, with counter-synchronized auto sales cycles across regions.

Looking forward, IHS Markit expects China to continue to be the world’s largest car market for the foreseeable future, and has upgraded its 2017 China forecast to 28 million units (up 1.9 per cent) and expected payback effects will now be in play for 2018 (slipping 0.8 per cent).

US auto sales have lost some momentum already this year, and the change of administration somewhat complicates the near-term picture.

The policies and changes proposed by the Trump administration regarding trade and environmental regulations creates some uncertainty, countered by a slightly improved economic picture for 2018–21, according to IHS Markit analysis.

It is difficult (and unlikely) to sustain and continue to grow at the same rates the US market has seen over the past 8 years, and a leveling off is underway.

In 2017, IHS Markit forecasts US light vehicle sales at an unchanged 17.4 million units, a slight moderation on 2016 levels, down just 1.0 per cent.

For Western Europe, Brexit uncertainty, banking fears, and election concerns are on the agenda for the EU projection—and after a decent 2016 (up 6.2 per cent), the market could lose momentum for 2017, though IHS Markit forecasts the industry will close out the year with 1.0 per cent growth.

The outcomes of elections in France and Germany could skew consumer confidence and policy, and therefore influence new vehicle purchases.

From a manufacturing perspective, the recent hard Brexit announcements had various automakers publicly state that they would need to revisit the terms of their investments, though some had made agreements with the UK government following the Brexit announcement, which intensifies the risk to UK-based auto manufacturing.

After four consecutive years of decline, the light vehicle sales market in Russia seems to have finally reached its bottom.

IHS Markit forecasts a growth rate of 8.25 percent for 2017 – even considering the expected stagnation in the coming 4-6 months.

According to forecasts, in the second half of 2017, a slight recovery is expected as the light vehicle sales market will profit from somewhat improved energy prices, a stabilized exchange rate and improved consumer expectations. However, sanctions will remain a key negative driver, but IHS Markit also acknowledges upside “risk of recovery.”

South Asian demand should recover further in 2017 and light vehicle auto sales in the region are expected to be 5.9 per cent in 2017, but India is expected to feel a negative demonetization impact and limit 2017 growth to just 7.7 per cent.

Meanwhile, Association of Southeast Asian Nations (ASEAN) car markets are forecast to accelerate by 4.6 per cent as recoveries continue in key markets. Japan and South Korea remain similarly depressed by tax-related hangovers and economic (Japan) and political (Korea) concerns.

Brazil remained firmly in the red for 2016, but appears to be close to the cyclical low. According to IHS Markit forecasts, the country should regain momentum through 2017 (up 1.1 per cent).

The Middle East region is also forecast to stabilize, supported by oil prices and the end of Iranian sanctions, with light vehicle sales forecast to grow 1.3 per cent from 2016.

IHS Markit 2017 Global Light Vehicle Sales Forecast
	CY 2016	CY 2017	% Change 2016/2017
Greater China	28	28.5	1.90%
North America	21.1	21	-0.60%
West Europe	15.8	16	1.00%
South Asia	7.9	8.3	5.90%
Japan/Korea	6.7	6.7	1.00%
MEA	4.8	4.8	0.60%
Central/East Europe	4	4.1	4.50%
South America	3.9	4	2.10%
	92.1	93.5	1.50%
Note: Volumes in millions
Source: IHS Markit, February 2017