J.D. Power International Roundtable Provides Future Industry Outlook

HumphreyJ

John Humphrey

After a successful 2012, the outlook in 2013 for the automotive markets in the United States and China remains optimistic, according to John Humphrey, senior vice president of global automotive at J.D. Power and Associates. He gave projections for the global auto industry during a presentation at the recent J.D. Power 2013 International Automotive Roundtable in Orlando, FL. Some 500 auto industry members—including dealers, marketers and executives from automakers—attended the one-day conference that was co-sponsored with the NADA. Some highlights from the presentation:

Auto Sales Shift to Emerging Markets

In 2013, the global automotive industry faces a somewhat mixed economic bag; the average GDP of mature markets will grow at about 1.4%, while the world’s largest emerging markets will grow by 5.5%, on average.*

Clearly, the United States and China are the bright spots to watch in 2013 and thereafter, in terms of sales and production potential. That said, there are pockets of overcapacity in the global industry that need to be addressed. In 2012, total global capacity for light vehicles reached 116 million units, against total global sales of 81 million units. This roughly translates to a utilization rate of 70%—well below the 80% threshold that most automakers need to reach to achieve financial breakeven. While utilization rates can vary widely by market—and impact the health of individual industries—the overall rate for the global industry can positively or negatively affect automakers with global operations.

Looking toward the end of the decade, the global automotive industry is plainly being driven by the largest emerging markets. In 2012, Asian markets accounted for 41% of the 81 million light vehicles sold globally—primarily China and India. By 2019, Asian markets will account for 49% of the 115 million vehicles forecast to be sold globally.

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China’s Automakers Eye India for Future Growth

Ammar Master

Ammar Master

The rapid emergence of India as a major automotive powerhouse coupled with the ambitions of China’s automakers to go global are the principal drivers behind the planned entry of China’s big automakers Beiqi Foton and Great Wall Motor.

Foton aims to become a key global player over the next decade, according to its 2020 Strategy statement. Under the truck maker’s “5+3+1” strategy, India is a key region in its growth plan along with Brazil, Mexico, Russia and Indonesia.

This is why Foton signed a Memorandum of Understanding (MoU) with the Maharashtra government in India last April to establish a manufacturing unit at an investment cost of $307 million over 5 years. It is currently in the process of setting up its plant in Chakan (near Pune) to build light-, medium- and heavy-duty commercial vehicles. Continue reading ›

U.S. New-Vehicle Sales Recovery in Progress with Higher Transaction Prices

Tyson Jominy

Tyson Jominy

As 2012 wraps up, possibly the most important trend for the U.S. auto industry is that new-vehicle sales continue their recovery. Light-vehicle demand continues to increase. Retail sales in calendar 2012 will likely hit 11.74 million units, up from 10.3 million units in 2011. Growth is expected to continue into 2013—our retail sales forecast for next year is 12.25 million units. The forecast assumes that there is a deal reached in Washington, D.C. before the so-called “fiscal cliff” constellation of tax hikes and expenditure cuts are slated to happen at the start of 2013. Three other major trends that we see looking at our Power Information Network® (PIN) data include:

OEM Emphasis on Transaction-Price Growth

While industry sales volumes are increasing, they are still well below the levels recorded in 2004-2007, when annual retail sales were in the 13-14 million-unit range. The primary reason that the industry has not rebounded to these record sales levels is a change in focus among OEMs. Automakers now emphasize strong transaction prices in addition to sales volumes.

This change is evidenced by the record transaction prices that are being earned across the industry. For example, in early 2010, average retail transaction prices were slightly more than $27,000, while at the end of 2012, we have observed average transaction prices approaching $30,000. These strong transaction prices are helping to offset lower volumes, and are driving increased profitability for OEMs. Continue reading ›

What Automakers Can Learn During Growth Surge in Thai Market

Gerrit Kuyntjes

Solid new-vehicle demand in the Thai market is being driven mostly by the rebate program for first-time car buyers* as well as pent-up demand and new-model introductions following last year’s severe floods during the monsoon season in Thailand. All of these factors, including the Eco-Car program, contributed to high double-digit growth in new-vehicle sales vs. 2011.

Last year was a rather dramatic year for Thailand. The massive flooding basically incapacitated the industry for months. We are expecting the sales boom this year to hit somewhere in the neighborhood of 1.4 million units from 794,081 sold in Thailand last year. That’s a phenomenal rise of 76%.

The rise has been driven by two factors: 1) the catch-up of the pent-up demand for the vehicles that were not sold last year because they simply were not available; and 2) the government’s first-time buyer’s program that heavily incentivizes car purchases. This program will no longer be available in 2013. However, we have sales carried over from last year where there was no supply and we’ve also cut into sales for next year. Continue reading ›

A Long Runway for Growth in China and Some Notable Trends

Geoff Broderick

In the coming scramble to win sales in the Tier 2-4 markets and earn profits in China, there is the temptation for OEMs to invest heavily in production, which can result in overcapacity. Discipline must be maintained in China or history will repeat itself—as illustrated by the imbalance of supply and demand in the U.S. market during the past decade. There is likely still more consolidation to come in the global auto market, but there is room for the smart players with solid business and product plans.

In the past five years, the combined vehicle sales market share of the emerging countries—including China and India—grew from less than 20% of the world’s total, to more than 50%. Among all emerging markets, China has one of the longest runways for continued growth based on its low penetration rate (vehicles per 1,000 people), in addition to a growing per capita income and rising disposable income. There also is a real opportunity for a steep takeoff, especially in China’s Tier 2 and 3 urban markets.

China Remains a Pillar in the Global Auto Industry

By 2018, China, the United States, India, Brazil and Russia will be the world’s five largest auto markets in terms of light-vehicle sales, with China as the far-and-away frontrunner at almost double the sales of the United States (30-35 million units vs. 17 million units). Japan, followed by Germany, the UK, Italy and France will round out the 10 largest markets, according to J.D. Power and LMC Automotive Forecasting.*

With closely aligned global supply and demand coupled with improved macroeconomic conditions—albeit slower for Europe—and significant new product introductions and an improvement in available credit—at least in the U.S. market—global sales, led by China (32.9 million unit sales), will boom by 2018 to slightly less than 114 million units.Although China will continue to see an increase in discretionary income, as well as much sales growth fueled from a further penetration of financing and the introduction of leasing, there will likely be intense competition to gain share in Tier 2 and Tier 3 markets. Continue reading ›

US New-Vehicle Sales Recovery in Progress with Higher Transaction Prices

Thomas King

As 2011 wraps up, possibly the most important trend for the US auto industry is that new-vehicle sales are recovering. Light-vehicle demand continues to increase. Retail sales in calendar 2011 will likely hit 10.3 million units, up from 9.2 million units in 2010. Growth is expected to continue into 2012—our retail sales forecast for next year is 11.3 million units. Three other major trends that we see looking at our Power Information Network® (PIN) data include:

Trend 2: OEM Emphasis on Transaction Price Growth

While industry sales volumes are increasing, they are still well below the levels recorded in 2004-2007, when annual retail sales were in the 13-14 million-unit range. The primary reason that the industry has not rebounded to these record sales levels is a change in focus among OEMs. Automakers now emphasize strong transaction prices in addition to sales volumes.

This change is evidenced by the record transaction prices that are being earned across the industry. For example, in early 2010, average retail transaction prices were slightly more than $27,000, while at the end of 2011, we have observed transaction prices consistently exceeding $29,000. These strong transaction prices are helping to offset lower volumes, and are driving increased profitability for OEMs. Continue reading ›

Will India’s Plan to Revamp Land Acquisition Laws Hinder Automakers?

Ammar Master

The issues in acquiring land for large-scale industrial projects in India are not new. And it is widely accepted that India’s archaic Land Acquisition Act of 1894 needs a major overhaul. With general elections to be held in a little over two years, politicians have started to woo India’s 500 million farmers—a strong voter base—with changes and proposals to the current land acquisition policies.

In recent months, states such as Uttar Pradesh* have revised their land acquisition policies. In West Bengal*, the new Chief Minister, Mamata Banerjee (who carried out Tata Motors’ Nano project), is implementing a new Land Rehabilitation Act, which would allow the state government to return 400 acres of disputed land from Tata Motors back to farmers. The automaker is now fighting the matter legally. Continue reading ›

China’s More Moderate Growth Impacted by Credit Policy Changes

Tim Dunne

After the first quarter ended, the media reported that China’s auto market is returning to “more rational growth” of about 10% above the same period in 2010. Some news reports have indicated that the market in China is cooler partly because of the elimination of most government policy incentives at the . . . Continue Reading China’s More Moderate Growth Impacted by Credit Policy Changes

Ford Plans Major Growth Strategy for India

Darius Lam

The massive success of the Figo sub-compact during 2010 has given new momentum to Ford’s growth plans for the Indian market. The company developed the Figo specifically for the local market after carefully studying the unique requirements of Indian drivers. More importantly, the automaker priced it extremely competitively, and as a result,  Ford sold 60,000 units of the Figo in 2010, essentially tripling its total annual sales in India.

Currently, the company can barely keep up with demand for the Figo. In addition to the sales increase, the Figo has helped attract an entirely new generation of younger, more affluent customers to Ford.

Ford Has a History of Developing Cars for India

To its credit, Ford has always taken the lead among global carmakers in developing products for the Indian market. Back in 1999, the company launched the Ikon sedan that was conceived for the Indian market. The Ikon helped drive up Ford volumes to the next level in India. Continue reading ›