The Automotive Industry in 2018: A Shifting Landscape Ripe for Disruption
2017 was a record year for new vehicles, with around 90 million new passenger cars and light commercial vehicles sold worldwide. Concurrent with rising sales is an emerging focus on technology in the automotive industry, primarily via connected, autonomous, shared and electric vehicles.
1. Total vehicle sales grow modestly between 2016 and 2017 but analysing country- and segment-level growth rates reveal a more nuanced story
Looking at year-over-year global vehicle sales growth of roughly 2.5% does not tell the whole story of what happened from a volume perspective between 2016 and 2017. Several markets – especially emerging ones such as Indonesia and India – maintained double-digit growth between 2016 and 2017, and one segment – SUVs – continued a runaway growth trajectory, with segment sales increasing 12.5% between 2016 and 2017, according to Euromonitor International and JATO Dynamics.
One key market that did not perform as well as expected was China, which grew by 2.3% between 2016 and 2017. China’s crowded cities and increased government restrictions on vehicle ownership are making new vehicles a tougher sell there. Despite slow top-line sales growth, segments such as SUVs remain popular growth categories. Electric and hybrid vehicle sales in China are expected to take off as well in the near term as government mandates on minimum electric and hybrid vehicle production quotas go into effect in 2019.
Multi-purpose vehicles (MPVs) are another area to watch globally, as the emergence of car-based SUVs threatens the minivan market. Sales in the MPV segment declined by 8.7% between 2016 and 2017, a trend that Euromonitor expects to continue through at least the mid-2020s. Despite MPVs’ practicality, automakers are exiting the segment amid waning consumer demand stemming from a lack of a “cool” factor and new crossover SUVs that offer similar versatility and handling characteristics.
2. Saturated lending markets, trade war risks and declining diesel sales pose risks to automakers in the short term
Euromonitor expects top-line vehicle sales to decline by 1% between 2017 and 2018 due to a variety of factors ranging from saturated lending markets, trade war risks and stagnating diesel sales. In the United States, for example, the outstanding balance of automotive loans reached an all-time high in 2017, according to Euromonitor International. Years of nearly unfettered access to credit has led to an abundance of overleveraged American consumers who risk not making their car payments in the event of an economic downturn.
The increasing threat of a United States-initiated trade war with China and Western Europe threatens new vehicle sales as well, given the globalized nature of the automotive industry and that many automakers export top-selling vehicles from plants in the United States. In Western Europe, the prospect of legislation aimed at banning diesel vehicles, which have recently been found to be unexpectedly damaging to the environment, is upending the decades-long status quo of steady diesel car sales. Automakers that do not effectively diversify their powertrains with efficient gasoline engines and electric offerings will struggle in Western Europe.
In the medium term, Euromonitor expects total annual passenger car and light vehicle sales to rebound and reach 100 million units by 2021 due to strong growth in emerging markets and sales of electric cars – particularly in Western Europe and China
3. Connected, autonomous, shared and electric vehicles are trends to watch in 2018
While unit sales remain critical to automakers’ success in the near term, other players – namely technology firms – are investing big in emerging mobility trends that may soon become more valuable than the vehicles themselves. Today’s new vehicles are connected to the internet and many are equipped with semi-autonomous driving features. Some innovative automakers, and a copious number of start-ups, are investing in new methods of vehicle ownership such as subscription services that will redefine vehicle ownership as we know it. Finally, electric vehicles will become a critical segment as China prioritizes them, which is shifting the epicentre of automotive research and development from West to East.