In advance of automaker’s fourth quarter sales announcements, Randy Miller, Global Automotive & Transportation Leader at EY, provided the following fourth quarter and 2014 sales analysis, as well as a 2015 forecast from the EY Global Automotive & Transportation Center. The sales data is sources from LMC.
The North American market has, once again, shown its strength buoyed by improving economics across the region 2014 full year sales for the region are expected to come in around 19.4 million units, an increase of 5.7 percent over FY13. The improving economic situation and increased consumer spending in the region are responsible for the sales boost.
For 2015, overall sales will still increase but at a slower pace versus previous years as pent-up demand begins to slow and fewer vehicles are coming off lease as witnessed in 2013 and 2014. U.S. sales reached 16.5 million units for the year, an almost 6 percent increase over 2013, which is the highest yearly post-recession total since 2006. Sales for the last quarter of 2014 came in at 4.1 million units, a 7.3 percent increase over 4Q13 as the country saw mild weather and falling gas prices during December of this year. Even with a record number of recalls in a single year (60.5 million units), consumers were not scared away from the showrooms. The year-over-year increase can be primarily attributed to tempting incentives as well as the abnormally bad weather throughout much of the U.S. at the end of 2013 causing consumers to stay away from showrooms.
Declining gas prices, which have fallen below $2 per gallon in parts of the U.S., have lead consumers back to trucks and larger vehicles and away from fuel-efficient vehicles.
Truck sales were up 6.7 percent annually versus 2013 and 13.5 percent versus the same period in 2013. Conversely, the compact car segment saw virtually no change between 2013 and 2014 as sales only increased by 0.5 percent.
Used vehicle prices increased in 4Q14 lead by strong consumer demand for older models. Falling unemployment and enticing financing boosted both the new and used retail markets. Among used vehicle sales, certified pre-owned vehicle (CPO) sales increased in 2014, hitting record numbers. Sales of used and CPO sales will continue their upward trajectory, albeit at a slower pace, in 2015 as off-lease vehicles provide more opportunities for increased dealer profits.
If fundamental economic indicators maintain their upward trajectory, U.S. sales could potentially reach 17 million units in 2015 for the first time since 2000. However, even with sales reaching a peak, growth is expected to be minimal (increase of only 2.3 percent YoY) and plateau in the market. The U.S. economy continues to be among the best in the world. As of January 2015, the U.S. unemployment rate fell to 5.6 percent, the lowest level since 2008. Other indicators such as strong housing starts, construction employment, steady GDP growth and lower gas prices reflect the strength of the country.
However, workers’ hourly wages have dropped, which could result in more cautious consumer spending. A major impact on spending would be the pending interest-rate increase, which may occur as early as the middle of 2015. 2014 represented a period of heightened safety consciousness as automakers didn’t want to be seen as dragging their heels on defective parts and vehicle operation issues. 2015 is going to be a critical year for automakers in terms of improving and getting to the root cause of quality issues.
Sales in Canada for FY14 were reported at 1.8 million units, up 6.3 percent from full year 2013. The Canadian economy, paired with higher employment figures, remained positive through the end of 2014 driving consumers to dealerships. The Canadian market has never before seen light vehicle sales this high with light trucks making up the majority of sales. In 2015, the market will only see around 0.5 percent growth as consumers focus more on household finances and less on discretionary spending.
The Mexican market ended 2014 with total sales of 1.1 million units, a healthy 6.7 percent increase versus full year 2014. The uptick in sales can be primarily attributed to the increased availability of credit and the release of pent-up demand. Used vehicle imports from the U.S. have continued to hamper new vehicle sales even as imports have fallen. Moving forward, sales are expected to grow by only 1.1 percent for 2015 tempered by new financial and tax legislation affecting consumers.
European Union (EU) Car Sales
After falling for six years and touching a two-decade low last year, EU car sales rose for the first time in 2014. December marked the 16th consecutive month of this trend, continuing the longest stretch of growth on record (after breaking the record in September 2014). The growth came on the back of high discounts from automakers, incentive schemes offered by governments in some countries, replacement demand for aging European fleet and new model launches. The compact car segment continued to outperform the market during the year and contributed to the growth story. SUV sales also witnessed a strong growth during the year, primarily driven by falling fuel prices, new model launches and increasing consumer preference. However, self-registrations, heavy discounting and other incentives for buyers remain a significant area of concern, as they continue to distort the true level of demand. Also, as the region’s economic recovery remained uncertain, growth in car sales has been erratic during the year.
The EU economy grew 0.3 percent quarter-over-quarter during the third quarter of 2014, marking the 6th consecutive quarter of growth, after an 18-month recession. However, as the economy is unable to maintain its rigor, the ECB has taken several recovery measures to stimulate its momentum. Meanwhile, unemployment rate continued to remain high, at 10 percent in November.
Forecast for the EU
As we move into 2015, the European car market remains fragile, as chances of economic recovery remain bleak. The ECB is planning to introduce several measures to stimulate the economy and overcome the stagnation. As a result, we expect car sales to witness a dampened growth of 3 percent to 4 percent in 2015. The compact SUV segment is expected to continue its growth story, at least over the medium-term, owing to new model launches and increasing consumer preference.
If the ECB’s measures come through, the European car market is expected to continue on its path of revival. However, the European car market is unlikely to witness accelerated growth, unless unemployment is brought down and consumer confidence is revived.
We remain cautious about the ability of new car sales to return to their pre-crisis levels by the end of this decade. Furthermore, car sharing and other alternative trends of urban mobility are expected to gain relevance in the market amid shifting consumer preference.