US to see uptick in auto sales in 2013

India market hurt by Euro Zone’s debt crisis, higher interest rates; Toyota will rule sales.

Bureau Report

NEW YORK: The United States led the worldwide auto sales in 2012 to post a significant gain despite growing uncertainty. The 13.5 percent growth in auto sales is the fourth straight year of uptick, yet below the peak recorded in 2007 just before the recession struck the global economy. Will the year 2013 be the fifth straight year of gains? The auto companies are optimistic of a growth in the U.S. as well as globally. However, the growth rate will mostly slow down as the European Union is yet to come out of the debt mess that is currently hurting it badly.

What are the factors that support the optimism of both analysts as well as the automakers? The challenges that every segment faces will continue to be there in the year 2013 too, especially the Euro Zone’s debt crisis and interest rates hurting auto sales in India among the various issues.

The U.S. will continue to see an uptick in auto sales on the expected demand from the replacement of age-old cars. The sector recorded a 13.5 percent gain in 2012. This is strongest after the 13 percent growth seen in the first year of recovery in 2009 following the recession due to financial imbroglio. The U.S. accounts for approximately 23 percent of the global car sales.

The fleet’s average in the U.S. has exceeded 11 years for the first time compared to the historic average of 9 years or less. This leaves enough space to probe the replacement segment. The interest rates are also deliberately kept lower and the consumers are expected to take advantage of this since the Federal Reserve has indicated its optimism to end quantitative easing in 2013.

The jobless claims in the U.S. have also eased to around 8 percent, despite structural issues continuing to hurt employment opportunities. A Scotia Bank analyst has reportedly said, “U.S. household balance sheets have improved significantly and are currently at the healthiest level in a decade.” This means that with the fiscal cliff resolutions, households are expected to open their purse strings.

While the U.S. automakers General Motors and Ford are predicting 15 million vehicle sales in 2013, which is in line with Scotia Bank analyst expectations, Japan-based Toyota Motors expects a modest increase of 1.4 percent to 14.7 million vehicles. However, the most optimistic figure came from Polk, a research and consulting organization, estimating 15.3 million vehicle sales.

However, the forecast from both analysts as well as the auto companies suggest that the growth will slow down to single digit in 2013.

If the year 2012 belonged to the U.S. to drive the growth, the second largest economy, China, will fuel the upside of auto vehicles in the year 2013. Sales in China are poised to accelerate due to various measures taken by the establishment and the momentums seen towards the end of the year as the economic growth has bottomed in the third quarter. China also accounts for about 20 percent of the worldwide auto sales. The country witnessed nearly 7 percent uptick in 2012 to 10.7 million vehicle sales. After taking into consideration the momentum toward the final months of 2012 and the initiatives taken by the government, analysts are expecting a minimum of 10 percent growth. This translates into approximately 11.8 million vehicle sales.

The higher urbanization, growth in income and lower level of vehicle penetration will continue to support auto sales upside not only in 2013, but also in the coming years.

India’s auto sales were less than expected despite hectic discounts offered by the automakers as higher interest rates hurt buyer’s enthusiasm. Aside from this, rising oil prices also dampened the spirit of the buyers. The BRIC nations comprising Brazil, Russia, India and China have reported lower than the sales growth seen in the largest economy in the world.

India is not likely to contribute much to the international auto sales in 2013. For the year 2012, about 2.05 million vehicles were estimated to have been sold thus suggesting a 5.1 percent uptick. The bumpy ride with which the auto sector has been riding the year 2012 will continue its journey in the same way in 2013 too. Even analysts are not optimistic though the Reserve Bank of India had indicated that it might reduce key interest rates in January. In India, nearly 80 percent of the new vehicles are purchased on credit and the interest rates play a significant role in guiding the consumers’ enthusiasm. Currently, 4.9 percent growth is predicted in an economy where there are more middle-class families, whose one of the aspirations is to buy a car.

The gains in the Chinese auto market will offset the weakness in the rest of the region in Asia to post a slower growth rate of around 6 percent versus 7.7 percent seen in 2012.

If the Western Europe’s auto sales are going to remain stagnant at 11.65 million, Eastern Europe’s sales are estimated to rise around 6 percent to 4.63 million from 4.37 million. German is going to buck the Western Europe’s trend to grow modestly at 2 percent to 3.14 million vehicle sales. The region suffered a 19-year low with its volumes plummeting due to the debt-ridden Mediterranean nations. However, sales are likely to offset any stabilization in coming months in the core Northern European nations taking advantage of improved economic indicators.

Among the other BRIC nations, Brazil is set to witness around 5 percent uptick in auto sales even as the automakers have lined up an investment of $19 billion till 2017. Of this, $5.2 billion is reserved for new assembly plants and the rest will be used for expanding the current facilities. These investments will aid long-term growth prospects.

Russia too will likely see 5 percent growth in auto sales as the subsidies have expired. Auto sales in the region were boosted by government incentives in 2011 when it clocked around 38 percent growth and 15 percent upside in 2012.

Overall, the worldwide auto sales growth will slow down to around 4 percent compared to a little over 5 percent growth recorded in 2012. Japan’s Toyota will continue to rule the biggest market in the world followed by General Motors. Toyota has maintained its production level of 9.94 million units. However, it is hoping to lift its sales by 2 percent.

China will hold the key for the global auto sales since Scotia Bank believes that “China is the key driver of global car sales, accounting for nearly 60% of the increase in world volumes over the past decade.”


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