Asia autos: Positive growth is no sign of strength in 2020
South East Asia will continue to be the bright spot of the Asia's vehicle sales market in 2020, led by Vietnam, according to Fitch Solutions research.
Fitch Solutions forecasts mild growth of 1.5% in Asia's vehicle sales market in 2020, following an estimated 7.2% decline in 2019.
Although this is positive, the volumes show that the market will still be far below previous levels at 42.4 mn units compared with 45.0 mn in 2017. Weakness in the region will continue to stem from its biggest market of China, unless some form of stimulus is introduced.
Fitch Solutions also expects to see the delayed onset of Singapore's cyclical downturn, which is linked to the 10-year Certiﬁcate of Entitlement scheme.
The best growth will continue to come from South East Asian markets, and Vietnam in particular with projected growth of 23.9 % as the market continues to adjust following 2018 's new import regulations.
Fitch Solutions still expects to see commercial vehicle (CV) sales growth outpacing that of passenger vehicles in 2020, as it forecast CV sales to grow 3.6% compared with 1.0% for passenger vehicles.
While this marks a turnaround from contractions in both segments in 2019, it is still relatively weak compared with previous years and the lower growth for the passenger vehicle segment underlines the risks facing consumers in particular in 2020 and reﬂects the dominance of Asia in the global infrastructure project pipeline, as captured in our Key Projects Database (see 'Three Key Charts: Global Project Pipeline Highlights Asia's Dominance', December 5).
Another Year Of Decline For China
Fitch Solutions forecasts total vehicle sales in China to decline further by 0.2% in 2020, following a 9.2% drop in 2019. The low base from the previous two years of contraction will keep the decline relatively mild, but a key risk to the market in 2020 is the winding down of the incentive scheme for electric vehicles (EVs), which has been one of the market's strongest growth segments. Upside risk will come from the removal of purchase quotas in a number of cities, including Guangzhou and Shenzhen, as well as new tax system which taxes the vehicle's price after discounts rather than the list price. However, these measures were introduced in June and have so far had little impact so we see only minimal upside potential.
South East Asia Still Strongest But Risks Loom
The markets of South East Asia still offer the best growth opportunities, but there are some risks to factor in heading into 2020.
In Indonesia, for example, new vehicle sales will face signiﬁcant pressure for the rest of 2019 and into early 2020 as a slowing economy results in used vehicle sales become increasingly attractive for consumers who are looking to cut back on spending.
It is expected that Indonesia’s economy to expand by 5.1% in 2019 following three consecutive quarters of ﬂat-line growth.
Total vehicle sales have also contracted by 12% y-o-y for the nine-month period between January and September 2019, prompting Fitch Solutions to revise vehicle sales forecast lower to a contraction of 7.0%. It has also revised our vehicle sales forecast lower for 2020. It now expects new vehicle sales to increase by 3.4 % versus our previous forecast of an 8 .7% expansion. It however remains conﬁdent that Indonesia’s automotive market will rebound amid measures to stimulate loan growth, which will feed into higher vehicle sales throughout the year.
In Singapore, the recent drop in Certiﬁcate of Entitlement (COE) prices for CVs and motorcycles will give these segments a boost, however, the passenger vehicle segment will remain weak as the discounts on vehicles will not be enough to counteract the cyclical downward pressures on this segment.
Furthermore, the relatively downbeat outlook for Singapore's economy will further dissuade consumers from making larger purchases in 2020. Therefore, it is expected that total vehicle registrations to contract by 4 .4% in 2020, and continue to average an annual contraction of just 0 .1% as the cyclical nature of Singapore's automotive market, driven by the 10-year COE period, coupled with fleet size limitations prevent new growth.
There are also risks linked to trade between the Philippines and Thailand. Although we forecast robust growth of 7.4 % for vehicle sales in the Philippines in 2020, an application by the Philippines Metals Worker Alliance to implement safeguard measures regarding new vehicles imported into the country could negatively impact the market share enjoyed by vehicles produced in both Indonesia and Thailand, if successful.
There is also a downside risk to sales from the fact the import restrictions would most likely hit Thai-built pick-trucks, which is the most popular segment in the Philippines. Given the country’s Public Utility Vehicle Modernization Program (PUVMP) to replace old light commercial vehicles (LCVs) used primarily to transport commuters, we forecast LCV sales to expand by 4 .3% in 2019 followed by a more robust expansion of 7.7% in 2020. However, limited availability due to import restrictions would dampen this outlook.
India's Weakness Is Financing, Not Demand
While Indian consumers might still be willing to buy a new vehicle, the liquidity crisis in the non-banking ﬁnancial companies (NBFC) sector, and new regulation in the formal banking sector, will see many consumers unable to obtain ﬁnancing for new vehicles in FY19, which will see vehicle sales (new and used) continue to contract. NBFCs reportedly account for the ﬁnancing of around 55% of CVs, both new and used, 30 % of passenger vehicles and nearly 65% of the two-wheelers in the country.
Therefore, it is forecast that vehicle sales in India to contract by 12.4% in FY19/20. Breaking this forecast down, it is expected that passenger vehicle sales to contract by 12.9% and for CV sales to contract by 10.8% over the same period.
This is a downward revision to Fitch Solutions' CV sales forecast from a contraction of 8.3% previously, as it is believeed the challenges faced by the country's banking sector, coupled with increasingly bearish business conﬁdence, will all contribute to sustained pressure on CV sales.
The increasing trade uncertainty and weaker economic growth will combine to make businesses increasingly skittish about spending money on vehicles. Although India's move in the Union Budget to reduce the corporate tax rate from 30 % to 22% was well placed, Fitch Solutions believes that businesses will use these tax savings to shore up their financial positions rather than spend it on new vehicles.
Car sales in November failed to meet expectations even though the year-end shopping season has started and despite various discounts of up to hundreds of millions of dong.
Among the incentives, the government is urged to lower the special consumption tax for locally made parts to help them reduce prices to compete with foreign manufacturers.