J.D. Power International Roundtable Provides Future Industry Outlook

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Adapted from John Humphrey's (Senior Vice President of J.D. Power and Associates) presentation at the J.D. Power 2013 International Automotive Roundtable in Orlando, FL.

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.

Europe and South America are Underperformers

From a macro-economic standpoint, Europe has been in malaise for some time, and its sales have continued to decline. Throw in the sovereign debt crisis, and sales touched a 20-year low in 2012. Excess capacity continues to be a significant burden on the market, and due to political and employment considerations, it’s difficult to cut back on this excess capacity. Consequently, Europe is not expected to rebound for the next 2-3 years.

Sales in Russia grew 11% in 2012 to 2.9 million units, and sales are expected to increase 3% in 2013 to 3.0 million units. Russia is an oil-driven economy, so as the price of oil and gas goes, so goes the economy. There’s a lot of excitement among automakers about the future of Russia’s market potential, and many OEMs are setting up production operations there.

Brazil represents two-thirds of all vehicle sales in South America, but sales in Brazil were relatively flat at 3.5 million units in 2012, and are expected to be flat again in 2013. Brazil does show very good prospects going forward, and is expected to achieve 5.0 million unit sales by 2017. However, there is a significant amount of gridlock in tax and bureaucracy in Brazil that needs to be addressed.

Japan Experiences Ups and Downs; India, ASEAN Markets Grow

Japan has done a good job rebounding from the March 2011 tsunami, and sales increased more than 25% in 2012 to reach 5.2 million units, helped along by government incentives. That said, sales are expected to experience a pullback in 2013, down 13% to 4.6 million units this year. Japan has been in and out of recession for three decades and has deflationary pricing and an aging population.

India will continue to grow over time—sales increased 12% to 3.3 million units in 2012— and are expected to exceed 5 million by 2015. That said, the overall market continues to underperform compared to its true potential. The main challenges remain urban congestion and insufficient infrastructure, as well as a tax policy and bureaucracy detrimental to growth.

Looking at ASEAN, Indonesia has grown considerably from an economic standpoint, with significant foreign direct investment (FDI) going into the market. From a sales standpoint, Indonesia has grown about 9% to 1.1 million units—more than doubling from 2009. Thailand is also a bright spot, with the local market approaching 1 million units, with vehicle exports approaching 1 million units as well

*Note: All J.D. Power forecasts are based on analysis from strategic partner LMC Automotive.