BMI View : The 3.7% decline in Australian vehicle sales in January 2014 plays out our downbeat view on the industry as poor consumer and business sentiment weighs on passenger car and commercial vehicle sales respectively. We forecast auto sales to decline 1.2% in 2014 and risks to our outlook remain to the downside.
According to the Australian Bureau of Statistics (ABS), Australian vehicle sales in January 2014 tumbled 3.7% year-on-year (y-o-y) in January 2014, to 82,285 units. When comparing on a month-on-month basis, sales were down by 15.0%.
January's sales figures are certainly a bad start to the year and play out our bearish outlook on the Australian auto sector. Indeed, we highlighted back in October 2013 that while we expected vehicle sales to finish the year on a record high, we foresaw renewed challenges to come to the fore in 2014 ( see 'Return In Confidence Will Ensure Strong 2013', October 24 2013).
We are maintaining our 2014 auto sales growth forecast for now. We forecast sales in the passenger car segment (includes SUV sales) to contract 1.0% and sales in the commercial vehicle (CV) segment to contract 2.1% for the full year, which will then bring our total 2014 auto sales growth forecast to -1.2%, to 1.12mn units. However, we caution that risks to our outlook remain to the downside and we would look to downgrade our forecasts in the coming months if consumers and businesses further retrench spending.
|Challenging Times Ahead|
|Australia - Domestic Auto Sales, Units (LHS); % chg y-o-y (RHS)|
In line with our view, demand from the Australian consumer is beginning to show signs of softening. It has been our view for some time that the slowdown in the country's mining sector will eventually hurt consumer sentiment, which was remarkably resilient in 2013, even in the face of slowing economic growth. While passenger vehicle sales have been declining on a y-o-y basis since August 2013, SUV sales growth has bucked the trend and remained in positive territory. However, even SUV sales suffered a contraction of 2.8% y-o-y in January 2014, which in our opinion highlights consumer sentiment turning for the worse.
Mining Sector Headwinds Will Weigh On CV Sales
Our Country Risk team has flagged up growing downside risks to the Australian mining sector due to project delays. As costs escalate and demand for certain commodities begins to wane, it is likely that the performance of the beleaguered mining sector will further deteriorate ( see 'Economic Deterioration To Reignite RBA's Easing Bias In H214', February 5). We believe the underperformance of the mining industry will continue to weigh on CV sales and the 12.2% decline in the segment for January 2014 attests to that.