The automotive business in China continued to do well in 2017. Last year, in all around 24.2 million basic cars, MPVs and SUVs were sold in the People’s Republic, which was more than on any other individual market in the world. Buoyed up by increasing urbanization and the associated rise in demand in the Tier 3 and Tier 4 cities, passenger car sales added 2 percent last year.
The key driver of sales was the reduction in value-added tax (introduced in October 2015) on purchases of new cars with engines of up to 1.6 liters. In 2015 and 2016, VAT was levied at 5 percent instead of the normal 10 percent. The tax break was continued in 2017, but with a smaller reduction (7.5 percent). This resulted in many customers bringing their purchases forward, especially in the final months of 2016, and these sales were then missing at the beginning of 2017. Sales in the fourth quarter of 2017 failed to exceed the record of the previous year (7.5 million units in Q4 2016) and instead contracted by 1 percent. Last year around 70 percent of new vehicles had an engine of 1.6 liters or less and therefore benefited from the tax break.
Over 2017 as a whole, there was a general shift between the passenger car segments in the People’s Republic of China. With growth of a good 13 percent, SUV sales showed above-average expansion and totaled 10.3 million units, accounting for 42 percent of the entire market. In contrast there were losses in the sales of basic cars (-2 percent to 11.8 million units) and of MPVs (-17 percent to 2.1 million units).
China is not only the world’s largest passenger car market, but also leads the field in registrations of electric cars and plug-in hybrids. Last year 581,300 of these vehicles were sold in China, i.e. 72 percent more than in 2016. The share of the overall market going to electric cars thus increased from 1.4 percent in 2016 to 2.4 percent in 2017. Last year the Chinese Government set a quota for e-cars, which obligates manufacturers to produce either e-cars or plug-in hybrids. From 2019 onwards, OEMs will have to meet certain minimum targets for the proportion of alternative powertrains in production and sales. This will be controlled through a complex system of points. Any manufacturer not satisfying the requirements will have to buy points from other manufacturer or else face fines.
Last year, 40 percent of all new heavy-duty commercial vehicles (over 6 tonnes) worldwide were purchased in China. As a result the market not only exceeded the one million mark again for the first time since 2013, but its 1.3 million units took truck sales to a new record. The huge growth of around 40 percent benefited from sales that were brought forward because on July 1, 2017, China introduced its new exhaust standard, the national standard V. Purchases brought forward continued affecting sales up to the beginning of the fourth quarter of 2017. The construction and investment activities surrounding the “New Silk Road” project may also have boosted sales.
After seven years of growth and the 2016 record of 17.5 million vehicles, the US market showed signs of slight saturation in 2017. Sales of light vehicles fell by 2 percent to 17.1 million units although this was still a high level. Hurricanes Harvey and Irma boosted the automotive business in the late summer by destroying a large number of automobiles – an estimated 100,000 vehicles had to be replaced.
With more vehicles kept in stock and at dealerships, production at US plants was held back significantly as the market cooled off in mid-year. Production over the year as a whole slumped by 9 percent to 10.9 million light vehicles, and the NAFTA region recorded a fall of more than 4 percent (17.0 million vehicles).
The general conditions were good for the US automotive business in 2017: a gallon of regular gasoline cost USD 2.42 on average (even if the price rose at the end of the year), i.e. far below the average of the preceding five years (USD 3.01). The labor market was also in excellent shape and consumer confidence was riding high. Financing conditions remained favorable despite three increases in the base interest rate by the Federal Reserve. On top of this, the OEMs offered large discounts.
The trend towards light trucks, which is apparent not only in the US, continued in 2017. While sales of pickups, SUVs, CUVs and vans added a good 4 percent to reach nearly 11.1 million vehicles, basic car sales shed 12 percent, falling to approx. 6.1 million units. This put the proportion of light trucks on almost 65 percent last year, which was the highest level ever recorded.
Among the light trucks, the CUV (cross utility vehicle) segment has shown the most dynamic growth for several years. In 2017 sales of CUVs expanded by 6 percent. Their share of the overall market thus rose again to reach 35 percent. For comparison, in 2005 the share of CUVs was only 13 percent. Furthermore, sales of sports utility vehicles (SUVs) and pickup trucks both increased by 5 percent. This meant that the proportion of SUVs remained at 8 percent, whereas the market share going to pickups climbed by one percentage point to 16 percent. The only subsegment among the light trucks to contract last year was the vans (-8 percent). Their market share came to 5 percent (6 percent in 2016).
In the context of a shrinking overall market, the German manufacturers marginally pushed up their sales in the US to 1.35 million units (+1 percent). This increased their market share from 7.6 to 7.9 percent. German OEMs’ light truck sales showed especially keen growth of 11 percent. They were therefore able to take third place from the Korean brands, whose market share fell from 8.1 to 7.4 percent. The Japanese improved their market share from 38.2 to 39.2 percent and came second among the automobile nations. Despite falling from 45.0 to 44.4 percent, the North American manufacturers remained – as expected – the leaders in the competition for the US market.
The automotive year 2017 was a successful one in the MERCOSUR states. After three years when the market suffered double-digit losses, totaling around 40 percent, the first positive reports are coming in again. In all 3.1 million light vehicles were sold last year, which was 13 percent more than in 2016.
Clear signs of recovery appeared in Argentina and Brazil in particular, the two largest economies in South America. Brazil has shaken off the recession of previous years and recorded a small increase in its GDP. Inflation fell markedly and the base interest rate hit an all-time low. In addition, consumer sentiment greatly improved, with the result that private consumption helped the overall economy to recover. However, considerable political risks still exist. The corruption scandal that has affected large parts of Brazil’s political class is not over yet, and the presidential election is scheduled for this year.
At the end of 2017 the promotional program “Inovar Auto” ended, which offered incentives for local production of motor vehicles. It is being replaced by a new incentive program called “Rota 2030.” For example, in the future the IPI (industrialized product tax) will be based on a vehicle’s energy efficiency. This should alleviate the current heavy taxes on electric vehicles.
In view of the economic recovery, light vehicle sales started rising again in 2017 for the first time since 2012. During the course of 2016, the decrease in light vehicle sales gradually became smaller, and since the second quarter of 2017 positive growth rates have again been recorded. Over 2017 as a whole, the market expanded to 2.2 million units – a rise of 9 percent. However, its volume is still around 40 percent below the record level from 2012.
Production of light vehicles in Brazil increased strongly in 2017. A total of 2.6 million passenger cars and light trucks were produced, i.e. 25 percent more than in the previous year. This is due in particular to the keen growth in exports. Last year around 50 percent more vehicles were exported than in 2016.
Since the end of 2015, Argentina, under President Macri, has become a beacon of hope for the South American continent. The high-speed reforms instituted during his presidency are bearing ever more fruit. Investors are regaining their confidence which has helped, for instance, to enable Argentina to return to the international finance markets. Macri is also aiming for closer cooperation between MERCOSUR and the European Union. For the first time in several years of negotiations on a free trade agreement, the proverbial ball is now in the Europeans’ court. Furthermore, the consumer climate has been improving continuously since mid-2016, and this also stimulates light vehicle sales. They have already recorded year-on-year rises of 23 percent twice in succession, taking the market volume to 883,800 units. In fact 2017 brought the second-best annual result ever recorded on the Argentinean light vehicle market.
At the same time, production of new vehicles in Argentina remained static. The total of 472,200 light vehicles in 2017 just equaled the previous year’s level. This came against the background of a repeated fall in light vehicle exports, which slumped below the already low level from 2016.
The Indian passenger car market also grew dynamically in 2017. Over 3.2 million cars were sold in India last year, which was almost 9 percent more than in 2016. The demonetization at the end of 2016 and the major tax reform last summer turned out – fortunately – to be only short-term obstacles.
In July the central government amended and standardized the Goods and Service Tax (GST) right across the country. The resulting simplification is intended to improve the long-term growth prospects. Economists believe that the tax reform could stimulate additional expansion of up to 2 percent. Despite the demonetization at the end of 2016 and the tax reform of last summer, the Indian economy expanded by 6.7 percent in 2017 and only recorded temporary shrinkage. Growth of over 7 percent is again forecast for the coming year.
The Indian passenger car market also continues to offer a lot of potential for growth. Passenger car density is very low, with just under 25 cars for every 1,000 inhabitants. Rising incomes and a growing middle class underscore the growth potentials. In the long term the Indian passenger car market could develop into the third largest sales market in the world after China and the US.
Sales of trucks (over 6 tonnes) added around 13 percent in 2017, rising sharply at the end of the year. With 294,900 units sold, the market reached its largest volume since 2011.
Production in India also increased last year. A total of 3.9 million cars rolled off the production lines – almost 7 percent more than in 2016. Production by the German manufacturers reached a volume of 165,200 vehicles in 2017, which was a year-on-year rise of around 6 percent. There was also an increase in German passenger car exports to India. After a weak result in the previous year, when vehicle exports lost 32 percent, in 2017 passenger car exports climbed to 20,400 units. However, this still left them about 25 percent down on the 2015 level.