Tag Archives: Auto Industry

Auto Production And Sales Plunge In Germany, Brazil

Following the recent dreadful auto sales numbers out of the United States, both Germany and Brazil have posted extremely weak auto production and sales numbers, prompting more questions about the state of the global economy.

According to JP Morgan, auto production in Germany has been surprisingly weak in recent months, with the prospects of a recovery delayed until “at least October.” This was unveiled with the German July Industrial Production data for July which was “a disappointment,” as manufacturing slumped 1.9%m/m and 6% annualized below 2Q18. Of this, automotive was the biggest weakness.

The shifting timing and pattern of holidays across the German states over the summer likely knocked the latest IP data around a lot, but this year the new emissions testing regime is adding a real drag. Since 1st September, all new cars need to be certified under the new testing regime, but some German producers appeared to have fallen far behind this deadline. Some car models have temporarily been removed from sales, while others have had to be modified to meet the new standards, resulting in reduced production levels to manage the changeover.

Meanwhile, according to more concurrent car production data from the German Automobile Association (VDA) which is now available for the month of September – and which counts the number of cars rolling out of factories – production has collapsed even further. An additional problem, is that the VDA data had already slumped in July (almost -20%m/m), while the IP data showed a fall of 6.7%m/m.

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While the VDA may be overstating the weakness, it is also possible that IP has much further to fall, adding to concerns about Europe’s slowing economy.

Not to be outdone by the United States or Germany, Brazil also posted plunging numbers for September. Auto production in the country was down 23.5% in September M/M, according to Reuters, while sales were down 14.2% over the same period according to the National Automakers Association. Brazil has traditionally been one of the world’s five largest auto markets until the country’s recent economic downturn. Companies like General Motors, Ford and Chrysler all have major operational facilities in Brazil.

And then there is the US, where earlier this week we reported the latest surprisingly poor auto sales numbers for September.

Results from Ford, Honda, Nissan, Toyota and Fiat all tell the story of an industry that had a terrible month, with few silver linings. Three of these names posted double digit percentage declines in YOY sales and three of them missed analyst estimates.

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Some details:

  • Ford posted an 11% drop, missing analyst estimates of 9.1%. The F-Series pickup line ended a 16-month streak of sales gains. Mustang sales were down 1.3%. 
  • Nissan posted a 12.2% drop in September. Nissan and Infiniti brand car sales fell by 36%, including a 28% drop for the Altima sedan as the company prepared to start selling an all-new version this week.
  • Toyota sales were down 10.4%, far below estimates of 6.7% for the month. Combined sales for Toyota and Lexus brand cars fell 25.3%. 
  • Fiat posted the only true “beat”, as sales rose 15% versus analyst estimates of 8%. However, the Chrysler brand fell 7% to 14,683 vehicles and the Fiat brand fell 46% to 1,185 vehicles. The deficit was made up on Jeep sales, which were up 14%, as well as sales of Ram pickups and minivans.
  • Volkswagen of America car sales were down 4.8%
  • GM third quarter total sales were down 11%. The company stopped reporting monthly numbers earlier this year, with many suspecting that weakness in the production pipeline is responsible; they were right. 

As discussed previously, the lack of auto incentives was the primary driver for the poor US auto numbers, prompting the question: absent carmaker subsidies, just how strong is the US auto market in particular, and the overall economy in general.

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Source: ZeroHedge

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Global Car Sales Tumble Amid Slowing Demand, Trade Wars

Global auto sales are in the midst of the first sustained slowdown since the 2008 financial crisis, according to new figures published by the WSJ. This complicates an already precarious situation for automakers, who have also been negatively affected by volatile global trade policy, rising commodity prices, declining demand and tariffs.

China and Europe are two key global markets that are recording the largest slowdown, while the United States continues to try and hammer out new trade agreements. 

The auto market in China – where new-car sales fell 5.3% to 1.59 million in July – compared with the year-earlier period has also slowed due to worsening trade tensions.  For the full year, sales are forecast to grow 1.2% over last year, according to LMC Automotive, down from a 13% growth rate in 2016 and 2.1% in 2017.

At the same time, demand for American vehicles, which generally has acted as a universal global catalyst, has also topped out, largely due to higher prices and higher loan rates, but perhaps also due to rising nationalistic sentiment amid a “don’t buy American” media wave.

Demand is also starting to wane in Europe, sliding to “pre-recession” levels. Many American car companies had already struggled to maintain profitability in Europe where the slowdown in demand is exacerbating the bottom line.

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Of course, not all global demand has dried up: the global economic strength continues to support solid underlying demand. However, on the horizon, speed bumps are emerging: for one, President Trump’s trade policies are having a negative affect on consumer confidence and are seen outside the US as “the biggest threat to continued economic growth.”

By the same token, if tensions ease between the United States and trade partners, however, that could act as a tailwind for the industry as we saw yesterday when automaker stocks rallied following the announcement of the US-Mexico trade deal as part of Trump’s NAFTA overhaul. Similarly, German auto makers also outperformed their respective indices during Monday’s session.

But the United States still has Europe and China targeted for new tariffs. China has responded by taxing US built vehicles 40% when they are imported. Meanwhile, analysts believe that the entire industry is at a tipping point and that a trade war could push auto demand “over the cliff”. According to Oxford Economics, a “moderate trade war scenario” could cause a decline in global GDP by about 0.5% in 2019.

Both Ford and Fiat had been counting on the Chinese market to reduce their dependence on North America. U.S. auto sales, having peaked in 2016 at a record 17.5 million, are on track to decline in 2018 for a second year in a row.

This uncertain scenario has caused automakers and auto suppliers, like Ford and Continental AG, to cite lack of demand in China and Europe as a reason that profits may miss expectations this year. This all comes at a time when R&D spending for the industry is also on the rise:

“The slowdown comes at a very difficult time as [the industry] transitions to more electrification and the robocar arms race sucks up research and development money,” said Dave Sullivan, an analyst with consulting firm AutoPacific Inc.

At the same time, commodity prices are rising, led by steel and aluminum prices – the result of recent Trump tariffs. New emission standards in Europe and China are also causing car companies to spend billions to try and meet new rigorous standards.

Since 2010, global auto sales have been on the rise to the tune of more than 5% annually. This year, even though vehicle sales are estimated to hit 97 million worldwide, the growth rate should slow to 1.8%, according to the forecasting firm LMC Automotive.

All the while, President Trump sees the automotive industry as a bargaining chip – often threatening to introduce additional tariffs that may wind up acting as headwinds for the overall industry. From the WSJ:

In May, the White House asked the Commerce Department to investigate whether it could use a national-security law to impose tariffs of up to 25% on cars and auto parts imported into the U.S.

Such actions could further crimp car sales, auto makers and analysts say.

“This would produce a near standstill in the vehicle markets,” said Justin Cox, a senior analyst with LMC Automotive. The firm forecasts that, if the trade dispute escalates, new-car sales in 2020 are likely to come in three million vehicles lower than current forecasts.

In China, new car sales fell 5.3% in July, which was a shock to an industry that has been experiencing rapid growth as a result of new wealth accrued by the country’s middle class. China is now the world’s largest auto market by number of sales, with 28.6 million new vehicle sales last year, according to the report.

Meanwhile, back in the United States, Ford cut its guidance back in July, blaming rising costs and the trade environment in both Europe and China. As we previously reported, July car sales in the US also tumbling as profit-seeking automakers slashed discounts. 

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As we noted then, all major manufacturers reported a sharp drop in U.S. deliveries for July, led by a 15% plunge at Nissan Motor. The reason: for the first time in 55 months, the auto industry – perhaps due to concerns about the impact of auto tariffs – cut back spending on incentives, snapping a streak of monthly consecutive increases that began 4 1/2 years ago, according to J.D. Power.

Rising rates and blowing out summer inventory were also blamed for sales tumbling.

Charlie Chesbrough, senior economist for Cox Automotive, pointed out another possible issue: that while automakers are pulling back on new-vehicle incentives, there are great deals on used-car lots. Returns of vehicles that have been leased are on the rise, and that added supply gives consumers more choice of lower-priced alternatives to new models.

“There is such tremendous competition from the used-car market,” Chesbrough told Bloomberg. “We have so many off-lease vehicles coming back to market and they are cheaper than new cars.”

But as these new global sales figures show, the problem isn’t just contained to the US. If tensions between the United States, China and Europe don’t improve, global automakers will be forced to start looking at emerging markets – places like India and Africa – to begin growing new markets in order to help try to keep up with targets. 

Source: ZeroHedge