For more than a decade, most of the world’s carmakers have gone all-in on China, wagering that its combination of rising wages, urbanization, and huge population would make it the center for global growth for years to come. But an equities conflagration in June erased an estimated $4 trillion of the Chinese stock market’s value. In the wake of China’s market crash, the China Association of Automobile Manufacturers forecast the country’s light-vehicle sales growth would slow to 6% for 2015 and perhaps go even lower if the stock market remains unstable.
China’s new-car sales fell 3% in June, marking the first monthly sales decline since 2008. The worry is that ongoing uncertainty and destroyed equity on China’s stock market will make consumers wary about new car purchases. To lure hesitant buyers back to the market, dealers are slashing prices. Some dealers in China have reported order cancellations, and the secretary-general of the China Passenger Car Association characterized the recent market crunch as a “meat grinder” for car sales.
A slowdown in China’s light-vehicle demand comes at a bad time for global carmakers. Many of the emerging markets they’d hoped would generate demand have sunk into economic turmoil. Much has been written about the combined economic might of the BRIC nations (Brazil, Russia, India, and China), but among them only India isn’t currently mired in economic crisis. Russia, once on the road to becoming Europe’s largest car market, is in recession, and light-vehicle sales have fallen 40% in the first half of 2015. Brazil is Latin America’s biggest car market but has seen car sales fall 20% so far this year amid a recession that is forecast to persist into 2016.
With many key emerging markets faltering, the world’s major carmakers are looking back to traditional markets — Western Europe and North America – for growth. Demand pent up by the global economic slowdown and, in Europe’s case, the eurozone debt crisis, is still fueling car sales as economic conditions continue to improve. European car sales are up more than 8% in the first half of 2015, according to the European Automobile Manufacturers’ Association. That’s nearly double the level of growth seen so far this year in the US.
Europe’s auto market is dominated by Germany (nearly 25% of Europe’s overall sales in the first half of 2015), which has been enjoying a period of rising wages, low unemployment, and healthy exports. However, if the Greek crisis hurts confidence in Europe, Germany’s economy could suffer, which would also hurt demand for automobiles. Likewise, an economic slump in China could hinder demand for imported goods from Germany, which would also likely translate into slower car sales in Europe’s biggest national market.
So if the economic woes of leading emerging markets have a ripple effect that also slows auto sales in the US and Europe, where do carmakers turn for growth? The short answer may be “nowhere.” The global automotive industry is about to enter a period of slower growth, according to a June 2015 report by AlixPartners. Global annual light-vehicle market growth is expected to shrink from 3.1% (in the period between 2007 and 2014) to 2.6% (between 2015 and 2021). The AlixPartners report is a sobering read for any automotive executive. It predicts slower growth coupled with unprecedented challenges and opportunities presented by emerging technologies and shifting consumer opinions about mobility.
As global light-vehicle manufacturers face geographic and quantitative shifts in demand, they may adjust their strategies related to manufacturing footprint, product development alliances, and investments in technology centers and R&D.
James Bryant is an industry editor for Dun & Bradstreet. Based in Austin, Texas, he writes about issues affecting the global manufacturing sector. He’s been the company’s specialist on the auto industry for 15 years.