OREANDA-NEWS. September 01, 2010. The difference between car sales and assembly so far in 2010 shows that a return to equilibrium is still  some way off, according to PwC’s Automotive Institute (PwC Autofacts). Crisis-based decisions of early 2009 have caused the automotive industry’s normal equilibrium between sales and assembly to fall noticeably out of sync, reported the press-centre of PwC.   

The Automotive Institute data indicates that, for 13 leading car producing countries, light vehicle assembly through to the end of May improved an astonishing 47.8% over the same period in 2009. PwC highlights that the uptick is almost entirely a result of the first half of 2009 being exceptionally weak as car makers engaged in massive assembly and inventory reductions, fearing a precipitous worldwide sales crash.

Recently, reports of remarkable auto industry growth of this magnitude are invariably attributable to China. But in this case, removing China from the global assembly total still produces an impressive year on year improvement of 44.8%.

Global sales showed a 21.1 % increase from January to May 2010 compared to the similar period of 2009. On the sales side however, China’s performance had a major impact. Removing China from the sales equation reduces sales growth in the same period from 21.1% to 12.0%.

Calum MacRae, analyst, PwC’s Automotive Institute, concluded:

“Residual effects of the widespread car industry crisis have altered the traditional relationship between light vehicle assembly and sales.  As automotive industry recoveries take different shapes in mature and emerging markets, regional responses to the downturn are creating highly variable assembly and sales figures that are masking underlying dynamics.”

Global Outlook
Mature markets like Europe are now preparing for an impending period of slowed industry growth as government stimuli wind down and financial challenge persist. Conversely, emerging markets like China that generated both organic and incentive-driven growth in 2009 have largely continued posting unprecedented gains in 2010. Yet, even China may witness slightly softer market conditions in Q3 2010 with more moderate economic growth projections and elevated potential for incentive exhaustion.

European Union
Uncertainty continues to prevail across the EU. Fiscal tightening, driven by the need to reduce government debt in many countries could negatively affect demand in H2 2010. The austerity measures, which include cutbacks in public expenditure with accompanying redundancies and/or pay reductions or pay freezes, will not only dent new vehicle demand in one sector of the economy, but may also have an adverse impact on consumer confidence in the wider economy, thus creating further downside risk for new vehicle demand. Autofacts’ assembly forecast is predicated on EU new car sales falling by 7.8% to 13.3 million units.

Despite the weak demand environment, Autofacts anticipates that light vehicle assembly will grow by 2.8% to 15.2 million units in 2010. One of the major factors is that output in 2009 undershot demand due to manufacturers’ attempts to reduce inventories in the early part of the year – therefore comparisons with output in 2009 are slightly misleading. Additionally, exports are demonstrating strong growth this year, aided by the fall in the value of the Euro, continued strength in the Chinese market, and recovery in many other export markets. Net trade should be further helped by increasing localisation of Hyundai and Kia assembly.

East Europe
Assembly in East Europe is driven primarily by domestic demand, but also aided by export programmes, predominantly to EU countries.

One of critical component in East Europe's outlook is Russia, where – as with other CIS countries – assembly is more reliant on domestic demand. In Russia long-term assembly growth is being driven by continued capacity localisation from global automakers. In the short-term, the Russian government’s scrappage scheme (recently extended from 200k to 400k units) will provide major stimulus to a market hit hard by 2009’s economic crisis and will likely prove especially beneficial for domestic automakers.

Natalia Scherbakova, partner, automotive Industry, PricewaterhouseCoopers in Russia:
“Although some automotive companies have recently begun discussing how production and imports are lagging behind market requirements, it is still too early to say that the Russian market is showing clear signs of recovery. An increase in sales and production of traditional Russian brands has been primarily driven by the government scrappage scheme. Growth in the segment of foreign brands produced in Russia is mostly at the expense of falling imports. There are positive trends in the market, but they cannot be regarded as evidence of sweeping changes.

“In general, car scrappage and interest rate subsidy schemes are being successfully implemented. The question now is whether these schemes should be closed as we have seen in the world markets – or whether they should be continued and perhaps featured in order for them to have not only short-term, but also long-term strategic effect for the industry’s development”.

Ukraine, which had experienced record rates of growth in recent years, continues to suffer as demand falls in line with economic performance. Other states, such as Kazakhstan and Uzbekistan, are exhibiting steady growth through the continued development of localised industries.