Global auto sales report

Global car sales advanced a slower-than-expected 2% in the first half of 2015, but remain on target to climb to the sixth consecutive annual record. Purchases are being supported by strengthening job creation in developed markets, improving household balance sheets, low interest rates and rising consumer confidence across much of the globe. Despite periodic bouts of financial market volatility, most economic and financial risk indicators still remain supportive of the ongoing economic expansion. Household purchasing power is being buoyed by rising incomes and low gasoline prices, while wealth creation is being bolstered by appreciating house prices in many nations and gains in global equity markets. Even with the recent weakness in equities in China, the capitalization for global equities has advanced 6% over the past year.

Car sales in Western Europe accelerated to an 8% y/y increase in the first half of 2015, and will approach a full-year total of 13 million units for the first time in five years. In fact, Western Europe has become the auto industry's growth leader in 2015, with volumes advancing in fifteen of the eighteen countries in the region. The improvement reflects strengthening labour markets and household balance sheets. Wages and salaries across the euro zone are advancing at the fastest pace since 2008. Income gains are much stronger in the United Kingdom, leading to a record 1.4 million cars sold in the first half of 2015, exceeding the 2004 peak.

Purchases are also strengthening among the new EU members in Central and Eastern Europe, with eight of the twelve countries posting double-digit gains this year. The Czech Republic is leading the advance, with volumes surging 20% above a year ago and surpassing 100,000 units for the first time on record (data back to 2004). The improvement reflects double-digit export gains to Western Europe - the destination for two-thirds of the country's cross-border shipments. The export-led recovery is even leading to a pickup in business investment, reversing an extended period of weakness.

Passenger vehicle sales in North America have advanced by 5% y/y through July, and full-year volumes will surpass 20 million units for the first time on record. Mexico is spearheading the advance, with purchases surging 21% so far this year alongside a strengthening economy and restrictions on used vehicle imports from the United States. Both Canada and Mexico will set sales records in 2015, while volumes in the United States will exceed 17 million units for the first time since 2001. Strengthening labour markets are driving the gains across the NAFTA region. Payrolls are advancing in excess of 5% y/y in Mexico, are growing at the fastest pace since the turn of the millennium in the United States and have gained momentum in Canada, especially in the industrial heartland of Central Canada and on the West Coast. Vehicle sales in these regions have advanced 6% this year, more than offsetting the slide in the oil-producing provinces.

Strengthening economic activity, improving household balance sheets and significant replacement demand have led us to increase our 2015 auto sales forecast for the United States to 17.2 million units, from 17 million previously. U.S. households have deleveraged significantly since the global economic downturn, and are now in the best financial shape in more than a decade. Meanwhile, rising incomes and stable new vehicle prices have lifted new car affordability to record highs, at a time when many households need to replace their aging clunkers - the average age of U.S. vehicles is a record 11.5 years.

"We expect vehicle sales to continue to move higher over the next several years, as nearly half of the 258 million vehicle fleet in the United States is at least 11 years old", says Scotiabank.

Car sales in China have softened from the double-digit pace of the past decade, dampening overall gains across Asia and prompting concern about the outlook. The 30% plunge in the Shanghai Stock Exchange since mid-June reduced car sales below a year earlier for two consecutive months and slashed the increase in overall vehicle purchases (including heavy trucks) to only 0.4% so far this year. While there is potential for further short-term weakness, especially if consumer confidence declines significantly, it is believed that, the downdraft will be temporary. The authorities have started to introduce more expansionary policies, and only a small proportion of Chinese households invest in the equity market. According to the China Household Finance Survey, less than 10% of households own equities. Furthermore, stocks represent only a small fraction of household assets. Real estate makes up a much larger share of overall wealth, and improving residential real estate prices have a more powerful effect on household finances. In fact, the value of household assets in China has been improving in recent months, and has historically been a key driver of the pace of sales gains. In addition, automakers have launched significant price reductions to woo customers back into showrooms, and are increasingly willing to sacrifice margins in order to sell more cars.

"Auto sales in India have advanced by 6% this year and will be supported going forward by an easing bias for monetary policy, strengthening economic growth and declining fuel prices. India has overtaken China to become the fastest growing major economy, with economic growth expected to average 7.5% this year and potentially even faster in 2016. Leading indicators of economic activity continue to gain momentum and are advancing at the fastest pace in more than four years. In contrast, auto sales and economic conditions continue to weaken in Russia and Brazil. Unemployment is on the rise in both countries alongside high interest rates and rising inflation. The Russian government recently launched a 1.5 billion ruble (US$23 million) auto loan program to help Russians buy up to 200,000 new cars, but the impact has been limited", notes Scotiabank.