Industry Trend Analysis - Asia Autos: A Positive Outlook Across The Board - NOV 2017


BMI View: We now expect all sub-regions in Asia to achieve positive sales growth in 2017, following some key forecast revisions. The most notable is Japan, where a more buoyant sales outlook will push the Developed Asia market into positive growth.

Asia will be the second-fastest growing region for vehicle sales in 2017. We forecast sales to increase 4.7%, a marginal improvement on our previous projection of 4.5%, but keeping the region behind Latin America. One of the more notable changes in the forecast breakdown is a shift into positive growth for the combined Developed Asia states, thanks to an improvement in the outlook for sales in Japan.

Asia A Solid Second
Global Vehicle Sales Growth By Region
BMI calculation

We still expect commercial vehicle (CV) sales to outperform the passenger car segment and by quite some margin at 9.0% compared with 3.8% for cars. We forecast this outperformance to be sustained until the end of our forecast period in 2021, although the growth rates will slow to 6.0% and 2.6% for CVs and cars respectively.

ASEAN And South Asia Still Tied

The ASEAN and South Asia sub-regions are still closely tied in terms of projected vehicle sales growth, although the aggregate forecasts for both have been revised down slightly. We now forecast sales in the ASEAN region to grow 6.9% and South Asia 7.0%, compared with our previous forecasts of 8.2% and 8.0% respectively.

Our outlook for the ASEAN market has been tempered slightly by weakened consumer spending in Indonesia, which has filtered through to a slowdown in the new vehicle market. We have revised down our passenger car sales forecast to growth of 4.9% from 11.0% previously, although we do expect H217 sales to show some improvement over the earlier part of the year ( see ' Lacklustre Consumer Spending Dampening Sales Outlook ' , August 21).

Balancing this out, however, is a slightly improved picture in Singapore where sales of rental cars, particularly those used for ridesharing activities, are helping to stymie the traditional slump in the market, created by the registration cycle. While we still expect passenger sales to fall in 2017 and 2018, we have revised our forecasts to declines of 5.0% and 6.5% from 8.5% and 9.6% previously ( see ' Ridesharing Popularity To Alleviate Market Contraction ' , August 25).

Ridesharing Boosts Rental Sales
Singapore - Total Car Fleet And Rental Car Share
Source: LTA

In South Asia, the slight downward move comes from a revision to our forecast for Sri Lanka, where we expect a number of headwinds to consumers to dampen passenger vehicle sales including new rules on auto loans and high import tariffs. Indeed, this consumer-specific weakness in the market is reflected in the vast difference between our forecast for a 16.0% decline in passenger car sales, and a 34.8% increase in the CV segment.

'Wealth Effect' Lifts Hong Kong Sales

Outside of the main sub-region grouping, positive wealth effects from a strong stock market and a booming property sector are feeding through to big ticket purchases such as cars in Hong Kong, leading us to revise up our forecast for passenger car sales to growth of 10.7%. Car sales for H117, including taxis, rose 20.4% y-o-y as private consumption in general grew 5.3% y-o-y in Q217 from 3.8% in Q117.

Rising Property Prices Having Positive Wealth Effects
Hong Kong – Centaline Property Price Index
Source: BMI, Bloomberg

However, the same drivers of this growth also pose the key risks as Hong Kong's red-hot housing market continues to be a key source of uncertainty for the economy. Our Country Risk team expects a slowdown in the sector, which is likely to weigh on the territory's domestic demand and overall economic growth. As such, we expect growth in new car sales to cool beyond 2017, expanding just 4.3% in 2018.

We believe that auto sales in Hong Kong will come under pressure as interest rates rise and inflationary pressures pick up. Our Country Risk team expects borrowing costs in the city-state to rise in tandem with the US due to the Hong Kong Monetary Authority (HKMA)'s currency peg to the US dollar. This will see interest rates rise from 0.75% in 2017 to 1.25% in 2018, which will eventually weigh on demand for financing for new car purchases.

Japan A Developed State Bright Spot

Japan has defied expectations of a market slump, leading us to revise up our forecast for passenger car sales, which now sees the combined Developed Asia markets achieving positive growth of 2.2% in 2017. Having previously expected a 2.3% contraction in passenger car sales due to a delay in the implementation of the sales tax ( see 'Sales Tax Delay Will Postpone Car Sales Recovery', June 3), we now forecast sales to rise by 3.0% this year, helped by stronger consumer spending. Japan's real GDP growth accelerated to an annualised rate of 4.0% q-o-q and 2.1% y-o-y in Q217 from a revised 1.5% q-o-q and 1.4% y-o-y in Q117, driven by consumer spending and investment.

We believe this promising economic outlook will bolster consumer confidence and help keep growth in car sales in positive territory throughout the rest of 2017. This view is supported by market data, which showed a 9.0% y-o-y rise in passenger car sales in Japan in 7M17. With sales in the first half of the year typically contributing more to yearly sales than the second half of the year (around 52% compared to around 49% according to our calculations), we expect sales growth to weaken but still remain positive in H217.

Growth In Consumer Spending Slowly Improving
Japan - Real Private Consumption Growth, %
Source: Cabinet Office, JMA, BMI

We stand by our view that the new sales tax will create a surge in sales before implementation. We expect passenger car sales to accelerate further in 2018, with forecast growth of 4.3%. We believe that the rise in the sales tax from 8.0% to 10.0% scheduled for 2019 will lead to a surge in new car purchases by households and businesses in 2018 to take advantage of lower car prices ahead of the 2019 implementation date.