While the outlook for global automotive manufacturers remains stable, demand in some emerging markets is expected to ease in 2014, says Moody’s Investors Service in an update to its Industry Outlook report published today. However, Moody’s expects that growth in China and the continued, slow recovery in Western Europe will offset some of this drop in demand. The outlook, which has been stable since September 2011, reflects Moody’s view of the fundamental business conditions for the industry over the next 12-18 months.
“We revised our growth forecasts for global light vehicle sales to 3.2% in 2014, from 4.8% earlier, mainly because of lower demand levels this year in emerging markets, namely Brazil, Russia and India,” says Falk Frey, a Senior Vice President in Moody’s Corporate Finance Group and author of the report. “That said, we expect China to continue posting relatively robust growth of about 8%, while Western European light vehicle sales will chug along at about 2% growth on their path to recovery from pre-financial crisis levels.”
In September, Moody’s had said that stronger-than-expected demand from China is likely to boost sales for car manufacturers to 4.8% in 2014.
Moody’s expects that emerging market overhang will remain, especially in Brazil and Russia. Economic growth rates in Brazil and Russia declined last year and their local currencies fell against the US dollar, euro and yen, which will likely lead to a drop in car sales in 2014. A drop in demand in these regions will hurt Fiat S.p.A. (B1 stable) and Renault S.A. (Ba1 stable) the most, due to the percentage of sales they generate there.
In its report, Moody’s also projects 4% growth in light vehicle demand in the US in 2014, down from 7.5% in 2013. However, some support for demand and pricing will come from the robust pace of new product introductions by Ford Motor Co. (Baa3 stable), General Motors Holdings LLC and General Motors Co. (Baa2 stable senior secured/Ba1 stable senior unsecured respectively).
In addition, Moody’s expects that demand growth in China will remain robust but slow to about 8% over the next two years, given the high base effect in 2013 when sales grew by 14.8% and when concerns about the government introducing car purchasing quotas pulled demand forward. In Korea, Hyundai Motor Co.’s (Baa1 stable) new key model launches will lead to a mild rebound in demand in 2014 (+4%). In Japan, however, Moody’s forecasts a 6% decline in light vehicle sales for 2014 on account of a hike in the consumption tax — to 8% from 5% at present — starting on 1 April.
Furthermore, the rating agency anticipates a bottoming out with a gradual improvement in demand for light vehicles in Western Europe based on slightly improving macroeconomic conditions, a better business climate and gradually falling unemployment rates. This should lead to new light vehicle registrations of 2% above 2013 levels . This, however, will still be 20%, or 3.0 million units, below pre-crisis registration numbers in 2007.