Global Autos Update: Developed States Have The Edge

Before car sales for the first quarter of 2014 are released, we take a look at how the first two months stacked up and where revisions to our full year forecasts have been made. The most notable changes have been an upward revision to Spain's car sales forecast, which has had a notably positive effect on the Core Europe compound forecast, while the worsening situation in Turkey has prompted a downward revision to our forecast. Our table now shows a definite leaning toward the developed states in terms of achieving positive sales growth in 2014.

Spanish Resurgence Prompts Upgrade

Our 2014 forecast for the Core Europe states (Germany, France, Spain, Italy, and UK) has risen from 1.9% to 2.4% growth, following an upward revision of Spain's sales outlook. Passenger car sales in Spain increased 17.8% year-on-year (y-o-y) in February, to 68,763 units, which means over the first two months, have increased 13.1% y-o-y, to 122,199 units. We have revised our full-year forecast up to 9% growth on the back of the extension of the vehicle scrappage scheme, which is buoying sentiment, while pent-up demand from sustained declines in recent years is also helping to drive sales, despite the country's weak consumer story dampening demand for big ticket purchases.

Pent Up Demand Driving Rebound?
Spain Passenger Car Sales (CBUs)

Global Autos Update: Developed States Have The Edge

Before car sales for the first quarter of 2014 are released, we take a look at how the first two months stacked up and where revisions to our full year forecasts have been made. The most notable changes have been an upward revision to Spain's car sales forecast, which has had a notably positive effect on the Core Europe compound forecast, while the worsening situation in Turkey has prompted a downward revision to our forecast. Our table now shows a definite leaning toward the developed states in terms of achieving positive sales growth in 2014.

Passenger Car Sales February 2014
Last Month Monthly Sales % chg y-o-y YTD Sales % chg y-o-y BMI End-2014 Sales BMI Full-year Growth Forecast (2014, % chg y-o-y)
Core Europe February 606,466 4.9 1,263,716 5.1 9,246,865 2.4
Eastern Europe February 68,317 25.8 135,874 18.9 804,244 7.7
Japan February 490,511 18.8 924,127 24.0 4,589,656 0.6
United States February 1,193,872 0.0 2,206,454 -1.4 16,166,366 3.6
Canada February 105,693 2.4 201,332 1.4 1,789,476 2.7
Brazil February 183,235 6.5 411,905 2.1 2,736,081 -1.0
India* February 217,749 -3.9 2,263,254 -6.0 2,558,515 -4.6
China February 1,312,200 18.0 3,159,100 11.3 19,747,648 10.2
Turkey February 27,167 -26.2 51,535 -17.7 611,483 -8.0
Russia ** February 206,476 -1.9 359,138 -3.6 2,696,158 -3.0
* year-to-date is financial y-t-d, full year forecast is Apr-Mar 2014 **AEB data (includes LCVs, therefore, forecast now includes LCVs)

Spanish Resurgence Prompts Upgrade

Our 2014 forecast for the Core Europe states (Germany, France, Spain, Italy, and UK) has risen from 1.9% to 2.4% growth, following an upward revision of Spain's sales outlook. Passenger car sales in Spain increased 17.8% year-on-year (y-o-y) in February, to 68,763 units, which means over the first two months, have increased 13.1% y-o-y, to 122,199 units. We have revised our full-year forecast up to 9% growth on the back of the extension of the vehicle scrappage scheme, which is buoying sentiment, while pent-up demand from sustained declines in recent years is also helping to drive sales, despite the country's weak consumer story dampening demand for big ticket purchases.

Elsewhere in the Core Europe area, France's recovery faced a setback as passenger car sales declined 1.4% y-o-y in February, taking the 2M14 tally down 0.5% y-o-y. We attribute this lacklustre performance so far to the country's weak consumer outlook. Indeed, we do not expect to see a recovery in the country's consumer story in 2014, despite our expectation for 2% growth in full-year car sales. We expect this to be achieved as pent-up demand starts filtering through after a sustained period of market contraction.

Pent Up Demand Driving Rebound?
Spain Passenger Car Sales (CBUs)

Our Eastern Europe sales forecast for 2014 has also been upgraded as some markets in the group begin to outperform. One such market is Poland, where sales for February rose 34.9% y-o-y, taking its sales for 2M14 up 22.7% y-o-y. BMI attributes this strong growth to the country's improving consumer story, which is increasingly filtering through to big-ticket purchases, and low base effects from a weak Q113. We expect improving consumer sentiment to buoy the market over the remainder of 2014, although higher base effects in the latter part of the year will temper the growth rate. Nevertheless, we have revised our 2014 sales outlook to 12% growth, from 7% previously.

Cold Snap Freezes US Sales

Light vehicle sales in the US were hit by severe winter weather hampering purchases early in the year, with sales for February staying flat. The total for 2M14 fell 1.4% y-o-y after a particularly harsh January saw sales fall 3.1% y-o-y. We expect this to change in the coming months, however, as the weather improves and delayed purchases feed through, aided by reports of generous incentives in the outperforming light truck segment. Accordingly, we maintain our forecast for 3.6% growth, making the US one of the best prospects for developed market growth in the table.

In Canada sales were more stable, growing 2.4% y-o-y in February and 1.4% y-o-y for the first two months. This is very much in line with our long-held view that growth in Canada will not be as high as the US but will be sustainable, having not suffered the same magnitude of contraction during the global financial crisis. The performance so far is in line with our forecast for 2.7% growth in 2014.

Tax Hikes To Stall Growth
Japan Passenger Car Sales (CBUs)

Although Japan appears to be easily the best performing market in the table right now, with February sales growth of 18.8% y-o-y taking 2M14 growth to 24.0% y-o-y, this spike will be temporary. We believe purchases are being brought forward to avoid the higher consumption tax due to take effect in April.

Therefore, we would expect another strong month for sales in March, before the higher tax creates headwinds for the market from Q214 onwards. With that in mind, we stand by our forecast for sales growth of 0.6% in 2014.

China A Bright Spot As Turkey Worsens

Among the remaining major emerging markets, China is maintaining its double-digit growth, as sales were up 18.0% y-o-y in February and 11.3% y-o-y for 2M14. Against a backdrop of slowing commercial vehicle sales, our view of a restructuring of the economy away from fixed investment towards private consumption is so far playing out, which leads us to keep our forecast for passenger vehicle sales growth of 10.2% in 2014. However, we caution that rising headwinds in the Chinese economy put the risks to our full-year forecast firmly to the downside.

Risks aside, China is still the bright spot among the BRICs as India's malaise drags on to almost guarantee the financial year ending March 31 2014 will finish with a contraction of the market, while the weakening private consumption stories in Russia and Brazil take their toll on the sector. Brazil's sales picked up in February after a January decline, resulting in growth of 2.1% y-o-y for 2M14. However, we still expect a 1% contraction for the full year as the broader slowdown in consumer spending in Brazil and higher car sales taxes impact the segment.

Light vehicle sales in Russia fell 3.6% y-o-y in 2M14, in line with our forecast for a 3.0% decline in 2014. In addition to the ongoing unwinding of the private consumption story, weakness in the Russian rouble will serve to make imported vehicles more expensive in local currency terms, serving to deter consumers.

Facing Multiple Challenges
Turkey Passenger Car Sales (CBUs)

One of our other most notable forecast revisions, however, comes in Turkey, where car sales for the first two months were down 17.7% y-o-y. We were already forecasting a 1% contraction in the market in 2014 as we expected deteriorating credit conditions, high autos taxes, and the weak currency to dampen sales. However, these dynamics are now also coupled with a hike in the special consumption tax imposed in January.

We also believe that Turkish private consumption in general will slow dramatically in 2014 due to three main factors. First, the ongoing depreciation of the lira will keep headline inflation elevated well into 2014, chipping away at consumer purchasing power. Second, heightened political uncertainty and growing social divisions will likely continue until parliamentary elections in 2015, weighing on consumer confidence that has already taken a hit from financial market turmoil. Finally, strong consumer credit growth rates in 2013 will plunge in the coming months as confidence falls and recent interest rate rises temper sentiment.

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