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Insight

Forecasts Predict Favorable Automotive Industry Trends

Tue, 09/15/2015 - 18:54

The fall of oil prices in 2015 had a significant impact on the country, but although this has been a negative trend for oil exporters, it has proven to be relatively beneficial for the automotive industry. The global sales forecast for light vehicles in 2015 is predicted to reach 87.85 million units, which is a 1.7% increase on the previous year. Until the end of 2021, light vehicle sales around the world are predicted to increase at a compound annual growth rate (CAGR) of 2.7%, reaching 104 million units. However, this will be entirely contingent on global oil prices, according to Guido Vildozo, Manager of Latin America Light Vehicle Sales Forecasts at IHS. Optimistically speaking, with low oil prices, increasing consumer confidence and higher spending, sales could exceed 110 million by 2021. However, should the European crisis be exacerbated, and if oil prices recover quickly, 45 million vehicle sales could be wiped off the baseline estimates.

In the NAFTA region, there is an increased focus on manufacturing and innovation in order to maintain pace with level of sales. Between 2001 and 2009, regional sales outweighed production by 27%, or 3.7 million units. However, the region’s efforts to attract OEM manufacturing plants is predicted to pay off, with an increase in production meaning that the gap between sales numbers and manufacturing will decrease to less than 7%, under one million units, from 2017- 2021. After a peak in 2017, a strong trajectory is set to taper and long-term output is expected to reach 18.5 million units, far outweighing the 16 million previous to 2009. The North American light vehicle export market share is predicted to remain stable, with around 80% of global exports set to come from the NAFTA region by 2017. This is the result of a number of factors, such as a greater use of global platforms and the expansion of the luxury segment capabilities into Mexico, with Audi and BMW both having established plants in the country the last year.

Sourcing patterns tend to favor North America as a favorable atmosphere, with a currency hedge and greater export prospects. This reputation has largely been created by the many free trade agreements that Mexico holds across the Pacific Alliance and Mercosur. Significantly, with year-on-year change of the NAFTA market to remain largely stagnant from 2014-2021, Mexico is predicted to experience a CAGR of 7.1%, by far the highest in the North American market, with the US reaching just 1.2% and Canada floundering with -4.3%. Since a significant drop in 2009, light vehicle sales in Mexico has increased year-on-year, and this trend is expected to continue, with constant growth between now and 2021. According to IHS, increased competition and enhanced access will result in steady sales growth of almost 150,000 units by the end of 2021.

Localization, expansion and exports are three factors that are considerably favoring the production climate in Mexico. Between 2014 and 2015, Ford increased North American light vehicle production by 7.1% with the introduction of its new F-150. The OEM also announced plans in April to spend US$2.5 billion to build a new generation of fuel- efficient engines and transmissions in Mexico, as well as creating 3,800 jobs. Similarly, Honda experienced a significant growth rate of 6.5% after its US$800 million Celaya plant began manufacturing in Mexico in late 2014. For BMW, growth was 9.9% and has invested US$1 billion in a plant in San Luis Potosi scheduled to open in 2019.

Finally, the largest growth was seen by Daimler at 19.4%, a company which recently entered into an alliance with Renault-Nissan to spend US$1.36 billion on a Mexican plant to produce 300,000 compact Infiniti and Mercedes-Benz units each year.

Despite further predicted growth for the North American exporter, the country’s expansion may be at risk depending on production capacity in Brazil, which is also expected to experience year-on-year growth. The outcome will be dependent on the extent to which OEMs find the country’s conditions conducive to cost-effective, quality manufacturing. At the moment, global growth is dictated by the TRIAD countries (the US, China, and India), rather than emerging nations. However, strong sales from Mexico in the first quarter of 2015 could herald the beginning of Mexico taking over as a global production site. NAFTA production will certainly see more investment, but one potential setback is the country’s reliance on imports of raw materials and heavy dependence on the US. “The momentum held by used car imports should continue to grow strong, but there must be an increased focus on the luxury car segment in order to maintain the steady growth of the industry,” concludes Vildozo.

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