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July 22, 2014

National Automotive Industry Development Plan (NAIDP) Drives Car Sales to Record Levels in Nigeria

Neil-KingAnalyst Insight by Neil King - Automotive Analyst

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In October 2013, the Federal Government of Nigeria announced its National Automotive Industry Development Plan (NAIDP). In order to stimulate investment in local vehicle production and thereby bolster Nigeria’s economy instead of revenues heading abroad, a core component of the plan is an increase in import duties for passenger cars from 20% to 70% (35% duty and 35% levy) and to 35% for commercial vehicles. However, the duty applied to vehicles which are assembled locally is set at 10% for SKD (semi-knockdown) Part 2 kits, 5% for SKD Part 1 kits and 0% for CKD (complete knock-down) kits. Also, manufacturers that assemble vehicles locally can import up to twice as many FBU (fully built units) as they do kits at the reduced import duty rate of 35% for passenger cars and 20% for commercial vehicles.

The plan was fully implemented on July 1 and, not surprisingly, new car sales soared as consumers took advantage of the lower duty rates while they still could. The Executive Director of the Nigerian Automobile Manufacturers Association (NAMA), Mr Arthur Madueke, was quoted on July 8 on This Day Live that “between January and December 2013, about 52,000 new vehicles were imported, while by May this year, 37,000 cars have been imported.” With CBU imported vehicles paying the old rate of duty until the end of June, sales are likely to have boomed in the month and a 30% growth rate for the first half of 2014 is therefore not out of the question.

Continue reading "National Automotive Industry Development Plan (NAIDP) Drives Car Sales to Record Levels in Nigeria" »

July 6, 2014

EU-Japan Free Trade Deal: Influx of Japanese Imports Could Lead to Strategic Alliances

Justinas_LiuimaAnalyst Insight by Justinas Liuima - Industrial Analyst

The European Commission has expressed a will to continue negotiations with Japan with regard to a free trade agreement (FTA). However, the deal is facing strong opposition from European car producers due to fears of a price war, driven by an influx of Japanese imports. If a free trade agreement is reached, European producers could seek strategic alliances with their Japanese counterparts. 

Fear of Japanese Imports Leads to FTA Opposition

Despite the expressed political support from the European Commission, the European Automobile Manufacturer’s Association (ACEA) is opposed to a free trade agreement. The EU has consistently faced a trade deficit with Japan in terms of motor vehicles, with the value of imports reaching €9.1 billion in 2013 compared to exports worth €7.8 billion.

ACEA fears that an FTA would hinder business in its home market, particularly for volume producers in Italy and France. FTA would provide better positions for Japanese producers to leverage overcapacity and flood the European market with cheaper imports. This could spark a price war in the EU, which would be disastrous for car makers in France and Italy, which are already struggling with overcapacity and low profit margins.

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July 5, 2014

To Gain in the USA, Premium Carmakers Invest in Mexico

Neil-KingAnalyst Insight by Neil King - Automotive Analyst

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According to a Reuters news report on June 27, “Daimler AG and Nissan Motor Co are jointly investing $1.36 billion to develop premium small cars and build a factory in Mexico, the companies said on Friday, in a step that deepens cooperation between the Mercedes-Benz and Infiniti brands.” This was swiftly followed by a report on July 1, which stated that “Munich-based BMW said on Monday it would make an announcement in Mexico on July 3, all but confirming a widely expected decision to build a new factory to meet growing demand for premium cars, shortly after its rival Daimler announced similar plans.” Back in early 2012, before talk of the MINT economies, I identified Mexico as one of the MITE hotspots of future autos demand - along with Indonesia, Turkey and Egypt - and so these investment decisions hardly come as a surprise.

 

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June 21, 2014

Light Vehicle Sales in China Set to Double the USA in the Early 2020s

Neil-KingAnalyst Insight by Neil King - Automotive Analyst

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Whereas China will overtake the USA to become the world’s largest economy in purchasing power parity (PPP) terms this year, light vehicle sales in China already surpassed the USA in 2009. Admittedly, the recession means that light vehicle sales in the USA plummeted by 18% in 2008 and a further 21% drop in 2009 took the volume down to just 10.4 million units, whereas pre-crisis sales typically exceeded 16 million units. In contrast, however, light vehicle sales in China continued their ascent even throughout the global economic downturn and flew by the US with 12.6 million light vehicle sales in 2009. Moreover, sales climbed to 16.6 million units in 2010 and so China would have undoubtedly overtaken the USA even without the sales slump brought on by the global financial crisis. The key question then is why did China become the largest car market in the world years before it would become the largest economy and what does the future hold?

Light Vehicle Sales in China and the USA, 2005-2013

Source: Wards Auto

Continue reading "Light Vehicle Sales in China Set to Double the USA in the Early 2020s" »

June 14, 2014

Full-Size MPVs and SUVs Gain Momentum in China as Larger Households Rise Again

Neil-KingAnalyst Insight by Neil King - Automotive Analyst

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Back in September 2012, in the briefing "China’s One-Child Policy is Shaping a New Automotive Landscape", I discussed the fact that one natural side-effect of China’s one-child policy is a proliferation of smaller households. In fact, half of all homes are expected to have just one or two residents by 2020. Traditional three and even four-generation households are being replaced by singles, childless couples, and two-generation households in China’s growing urban landscapes. Social changes regarding marriage and the evolving role of women in modern China has allowed for much of this change. Young Chinese are moving out of the familial home upon graduation from university or college, often choosing to remain in the city in which they graduated, and concentrating on personal and career fulfilment before meeting the traditional requirements of the older generation. It comes as little surprise then that the number of households with six or more inhabitants halved between the late 1970s and the mid-1990s and that they accounted for just 6.5% of all Chinese homes in 2013. In this context, full-size MPVs have typically captured a negligible share of the new car market but this is changing.

Continue reading "Full-Size MPVs and SUVs Gain Momentum in China as Larger Households Rise Again" »

June 8, 2014

Pre-Crisis Attitude towards Debt in the US Translates into Pre-Crisis Light Vehicle Sales

Neil-KingAnalyst Insight by Neil King - Automotive Analyst

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When the US recession hit at the end of 2008, many analysts rightly pointed to the overzealous growth of consumer lending as one of the underlying causes. Banks and consumers alike were caught up in a positive feedback loop, too distracted by the easy money all around them to assess the extent that they were over-reaching financially. As asset prices started to plunge, it became apparent who could really afford what, and banks, eager to stem their losses, began to tighten their credit-based lending. Gross autos lending fell by 16% in 2008 and, similarly, light vehicle sales plummeted by 18%. However, gross auto lending experienced a CAGR recovery of 6% from 2010 to 2013 and light vehicle sales have rebounded with a 10% CAGR over the same period. Moreover, a pre-crisis attitude towards debt is helping to drive light vehicle sales back to pre-crisis levels already in 2014.

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May 15, 2014

Marchionne’s Latest Five Year Plan Rightfully Addresses the Core Problems at FiatChrysler (Part 2)

Neil-KingAnalyst Insight by Neil King - Automotive Analyst

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Further to my first piece which focused on FCA’s plans in Europe, the second problem that FCA’s new plan seeks to tackle is the group’s fundamental under-representation in key emerging markets, especially China. Although compact cars account for 1 in 4 passenger vehicle sales in China, competition is intense and FIAT arguably sits uncomfortably between domestic brands and numerous foreign players that are significantly more established in China. With neither the brand reputation nor an especially compelling product, it is little surprise that the locally-assembled Viaggio sedan did not meet sales expectations.

However, with the Chinese market set to grow to 30 million units by 2020, boosted especially by middle-income earners, and the boom in SUV sales in China, the resurgent Jeep brand surely provides a perfect platform for FCA in China and other key emerging markets such as India. Aside from credible products, Jeep does of course also have the brand heritage in China that FIAT lacks – bear in mind that the first Beijing Jeep rolled off the lines in China in 1985 but ultimately disappeared with the demise of DaimlerChrysler. A full return to China, i.e. not just as a niche import brand but as a fully-fledged local manufacturer is therefore long overdue for Jeep. Furthermore, the newly revealed Renegade compact SUV will also be produced in Italy and should successfully tap into the burgeoning demand for small SUVs across Europe.

Continue reading "Marchionne’s Latest Five Year Plan Rightfully Addresses the Core Problems at FiatChrysler (Part 2)" »

May 14, 2014

Marchionne’s Latest Five Year Plan Rightfully Addresses the Core Problems at FiatChrysler (Part 1)

Neil-KingAnalyst Insight by Neil King - Automotive Analyst

View Neil King's profile on LinkedIn

On May 6, CEO Sergio Marchionne presented his latest five-year strategic plan for the newly unified FIAT Chrysler Automobiles NV (FCA). Investors have most certainly not embraced the plan and remain sceptical at best, with the stock price of FIAT SpA falling more than 11% as a result. However, at €7.54 (US$10.38) at the time of writing, this is still higher than at any point during 2012 and 2013 and is arguably more of a knee-jerk reaction to the group’s weaker-than-expected Q1 results which were actually only dragged into the red because of the US$491 million cost of acquiring the remainder of Chrysler. Moreover, I see the logic behind the plan and fundamentally support it as Marchionne attempts to address two core issues that are plaguing FCA; Europe’s squeezed middle and the group’s under-representation in key emerging markets. In this first piece of two, I discuss the situation in Europe.

Continue reading "Marchionne’s Latest Five Year Plan Rightfully Addresses the Core Problems at FiatChrysler (Part 1)" »

May 4, 2014

Euromonitor Bullish about the Recovery of Car Sales in West Europe in 2014: Forecasts 5% Growth

Neil-KingAnalyst Insight by Neil King - Automotive Analyst

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In an article on 24 April 2014, the Financial Times reported that “Renault said Europe will see sales growth of between 2 and 3% over the year, a modest rebound from 2013, which was the worst car market for two decades.” This is in line with the general outlook for car sales in Europe in 2014 but  back in March, I predicted that West European car sales would climb 5% in 2014; from 11.6 million sales in 2013 to 12.1 million in 2014 and so I thought it worthwhile to elaborate on why Euromonitor has adopted this apparently bullish stance.

 

Although Euromonitor International projects just 1.3% GDP growth in Western Europe in 2014, this follows on from a contraction of 0.2% in 2012 and an increase of just 0.3% in 2013. Furthermore, the number of European households that can afford a new car, ie those with an annual disposable income over US$25,000, is expected to climb by 0.9% in 2014. This may not sound significant but it is actually the highest growth rate since 2007 and in itself means that the pool of potential new car buyers is expected to be 1% larger than it was in 2013. This must also be seen in the context of declining savings ratios in the key European economies, largely as a result of protracted low interest rates, and this is naturally a positive for the car sales outlook.

Continue reading "Euromonitor Bullish about the Recovery of Car Sales in West Europe in 2014: Forecasts 5% Growth" »

April 16, 2014

Vorsprung Durch China: Sales Restrictions in Chinese Cities Will Not Stop Audi Becoming the World’s Best-Selling Premium Brand

Neil-KingAnalyst Insight by Neil King - Automotive Analyst

View Neil King's profile on LinkedIn

There has been a flurry of announcements recently regarding the record sales of Audi, BMW and Mercedes-Benz cars in March and the first quarter of 2014. Better weather in the US, the recovery of car sales in Europe and the later timing of Easter this year are all cited as reasons for the on-going surge in demand for the German premium carmakers’ offerings. Whereas these are all contributory factors, the omission of any reference to the swelling ranks of wealthier consumers around the world who can afford upscale cars, especially in China, is noticeable. After all, it is this ever expanding pool of new consumers in their largest market that will ultimately make Audi the best-selling premium brand in the world. Car sales restrictions in Chinese cities will naturally slow proceedings but Audi’s investments in both its dealer network and local production of compact models is bound to more than compensate.

Two years ago, I discussed the correlation between sales of Audi, BMW and Mercedes brand cars and the development of households with over US$100,000 annual disposable income and the predictions made then still hold up today. First, China became the largest market for the combined sales of Audi, BMW and Mercedes in 2012. In fact, China became the largest single market for Audi in 2011 and for BMW in 2013, with only Mercedes still more dependent on sales in the US and Germany. Second, global sales for the three German premium brands are still on track to easily exceed 5 million units in 2015 – in fact, the 5-million milestone is likely to be reached in 2014 given the recovery in the US and Europe and the continuously rising number of affluent households around the world. Third, despite the model offensives of BMW and Mercedes, Audi’s leadership in China will propel it to become the largest premium carmaker, albeit not before 2015.

Continue reading "Vorsprung Durch China: Sales Restrictions in Chinese Cities Will Not Stop Audi Becoming the World’s Best-Selling Premium Brand" »

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Recent Posts

National Automotive Industry Development Plan (NAIDP) Drives Car Sales to Record Levels in Nigeria

EU-Japan Free Trade Deal: Influx of Japanese Imports Could Lead to Strategic Alliances

To Gain in the USA, Premium Carmakers Invest in Mexico

Light Vehicle Sales in China Set to Double the USA in the Early 2020s

Full-Size MPVs and SUVs Gain Momentum in China as Larger Households Rise Again

Pre-Crisis Attitude towards Debt in the US Translates into Pre-Crisis Light Vehicle Sales

Marchionne’s Latest Five Year Plan Rightfully Addresses the Core Problems at FiatChrysler (Part 2)

Marchionne’s Latest Five Year Plan Rightfully Addresses the Core Problems at FiatChrysler (Part 1)

Euromonitor Bullish about the Recovery of Car Sales in West Europe in 2014: Forecasts 5% Growth

Vorsprung Durch China: Sales Restrictions in Chinese Cities Will Not Stop Audi Becoming the World’s Best-Selling Premium Brand