Euler Hermes > Economic research > Economic News


  • ​Emerging market trends vary: increase in China, decrease in India and  Russia 
  • Sharp U.S. upswing dampened by European downturn 
  • Japanese manufacturers to benefit from yen depreciation 
  • Continuing soft demand and scant profitability in Europe will force capacity changes


​BALTIMORE, Md. – SEPTEMBER 19, 2013 – U.S. automobile industry production should grow by 8% in 2013 before slowing to pre-crisis growth levels of 4% in 2014, according to the latest sector report by Euler Hermes, the world’s leading provider of trade credit insurance. The fierce reshuffle in the industry appears to be over with the sector growing profitably and creating more than 150,000 jobs during the past three years.
According to Yann Lacroix, sector advisor at Euler Hermes, “Global sales in 2013 have continued to grow at approximately +3%. This figure masks greatly differing regional market trends. While the United States and China recorded growth rates of above 10% y/y for the 12 months to the end of May, Europe’s five-year decline continued, falling a further -8% in the first six months of 2013. Worldwide passenger and commercial vehicle production growth is back on track, but the balance has shifted and production has moved to new economies. Clearly, manufacturers need a global presence to benefit from growth regions and offset those in difficulty. An effective international presence is essential to generate decent profits and to finance investments and research, as equipment manufacturers are doing.”

Cracks appearing in the Eldorado of emerging countries

Automobiles remain a high-tech industry, with an elevated level of R&D that can only be financed by mass production. As 70%-80% of vehicle parts are purchased from component manufacturers, size and investment capacity are key success factors. Western component manufacturers dominate the sector, and their Asian production facilities numbers have risen.
In China particularly, the world’s largest market, many new plants will begin production in 2013 and 2014. Due to the difficulty of overcoming technological barriers, no local player has asserted itself, as is also the case in Brazil, India and Russia.
The Chinese stimulus package euphoria of 2009-2010 has subsided and the market is again growing at a healthy 8-10% pace. Growth potential remains – nearly 10% in 2013 and 8-9% in 2014 – and a pre-owned vehicle market is appearing.
The Indian market will decrease by -10% by 2013 year-end, although new model launches in the second half should reverse this trend. The market is expected to grow 5-6% in 2014.
Brazilian growth will be flat at 2.9 million units in 2013 before recovering slowly next year (4-5%). In 2012 the market increased by 7%, but only because the Government cut its tax on industrial goods (IPI) in Spring 2012 to stimulate the local automotive market. Lack of that stimulus will impact 2013 and 2014 growth.
Russian market prospects are exciting but not stable. After growing by 11% in 2012, the market will decrease by 6%-7% in 2013, recovering to a slow growth of 4% in 2014.

A reviving American automotive market

In recent years U.S. carmakers significantly diversified their supply sources, to the benefit particularly of European component manufacturers who have invested massively in the country. European expertise is renowned both in technical aspects – notably in reducing fuel consumption and thereby CO2 emissions – and in terms of product quality, such as vehicle interior fittings.
However U.S. manufacturers are also demonstrating renewed growth. The market continues to rebuild after the loss of more 20 million sales units since 2009. Growing 12% in 2012, the market will increase by 8% in 2013, then reduce momentum in 2014 to around 4% -- near pre-crisis levels.

Japan: a monetary policy to boost production and profits

The yen’s 40% drop against the euro in 2001-2008 gave Japanese manufacturers a competitive edge. Thereafter, the yen dropped to early-2000s levels, shattering the competitive advantage and shifting production abroad. A 25% depreciation of the yen has boosted production and profits since the middle of 2012.
The market is weathering a fierce storm, and shrinking over the long term. The yen’s rise hampered manufacturing profits until mid-2012, but the new monetary policy will turbocharge future profits. The 2008 financial crisis disrupted the market, which bounced back on the 2009-2010 stimulus packages. The 2011 earthquake and tsunami collapsed the market, followed by a bounceback of 30% in 2012. Growth is expected to fall -10% in 2013, then stabilize at 4.9 million units in 2014.

Part of the European market is growing

The European market continued to fall to the end of (May, down -7.6% at 12.1), June down -8% at 12,05 million units -- far from pre-crisis level of nearly 16 million units. Over the full year, market decline is expected to reach -6.6% and a sales volume low of 11.7 million units, with a light trend reversal in 2014. It will, however, be many years before registrations return to pre-crisis levels. Overcapacity will continue to weigh on manufacturers’ margins while the price wars to preserve market share continue.
Spanish cost structures have been reduced to be more competitive; production should grow by 10% in 2013.  After the market collapse and production relocation, French plants are producing roughly 1.4 million cars. French vehicle manufacturers saw profits crumble in 2012 and 2013, and need to embark on heavy, costly rightsizing. Germany’s production regained its pre-crisis level at the end of 2011, declined in 2012 in line with the European crisis and remains at a low level in 2013 -- around 5.3 million units. German manufacturers are offsetting European market decline with robust international sales growth in China and the U.S.
“Against this very downbeat backdrop, the United Kingdom is the only standout, with year-on-year sales growth of +8% to the end of May 2013 (2.15 million units),” said Ludovic Subran, chief economist at Euler Hermes. “Credit is due to very low interest rates and attractive promotional offers for small, fuel-efficient models after a sharp increase in oil prices. Although the British market is one of Europe’s few 2013 growth spots, it also remains below its pre-crisis level of 2.4 million vehicles sold.”