Moody's: Sputtering US auto sales keep global auto sector outlook negative into 2018

Continued weakness in US auto sales will tap the brake on global demand growth and keep the overall outlook for the global automotive manufacturing sector negative over the next 12 to 18 months, says Moody's Investors Service.

"While steady global GDP growth will drive a bigger demand for cars in key markets like China, Japan and India, we expect US car sales to weaken and slow the speed of growth for the automakers sector globally to less than 2% into 2018, and so our sector outlook remains negative," says Falk Frey, Senior Vice President at Moody's.

US auto sales will decline 3.6% in 2017 and 0.6% in 2018 as the accommodative financing environment that had helped buoy US car sales recedes and used car prices come under pressure as large numbers of vehicles come off lease. That said, replacement demand in the wake of Hurricanes Harvey and Irma will provide some temporary relief from weakening demand.

Chinese auto sales growth will cool into 2018 as a tax cut on purchases of small engine passenger vehicles comes to an end. Moody's expects that Chinese auto sales will grow 3% this year and 2% in 2018. China's still-low vehicle penetration rate and continued economic growth could return auto sales growth beyond the low-single-digit range over the next five years.

"Western European auto sales will grow 2% this year on the back of improving demand in Germany, where automakers such as BMW, Volkswagen and Daimler have been offering consumers incentives to trade in older diesel vehicles for less polluting ones," adds Mr Frey.

Japanese car sales will grow by a robust 5.6% in 2017, supported by Nissan Motor's return to the minicar segment. Sales should return to a more normalized growth rate of around 2% in 2018.

Indian car sales will remain robust, growing 9% this year and 7% in 2018, supported by the impact of India's new goods and services tax, as well as new model launches. Automotive demand is poised to bounce back in Brazil, Argentina and Russia as their respective economies emerge from recession.

Longer term, global automakers face growing pressure on their cash flows as they ramp up capex and R&D to overcome technological and policy challenges from improving self-driving, hybrid and all-electric cars, as well as ride-hailing services like Uber and emissions-related regulations.

Powered by Capital Market - Live News