Global Insight Perspective | |
Significance | IHS Global Insight has come up with a number of scenarios for the global light-vehicle market in 2009 in reaction to the unprecedented decline in global demand in November, when worldwide sales fell by between 20% and 24%. |
Implications | The very nature of the current crisis in the global automotive market means that it is extremely difficult to make any kind of accurate forecast. As a result, IHS Global Insight has come up with three separate scenarios to cover the broad base of potential developments in 2009. |
Outlook | The sales outlook for 2009 that we judge to be the most likely (a 50% probability) suggests an 8% decline in global sales volumes in 2008, which equates to a fall of 5.2 million units and an 11% decrease from peak global sales in 2007. |
IHS Global Insight's Director of Global Forecasting Nigel Griffiths has formulated a number of potential scenarios for global automotive sales and production in 2009 in light of the almost unprecedentedly bad market environment at present. These scenarios have been given a probability of outcome and are designed to help our clients make sense of the currently highly volatile global automotive market following November's accelerated decline in global sales volumes, which contracted by between 20% and 24%, according to IHS Global Insight's best estimates. The size of the slump in individual markets has been worrying, but a far bigger concern is that virtually every car market in the world has suffered a simultaneous collapse. Our initial estimates, combined with actual reported data for November, suggest a widespread and systematic collapse of car sales around the world, affecting mature and emerging markets, the like of which has not been seen since the Second World War.
The highly synchronised nature of the collapse in light-vehicle sales in November was, according to Nigel Griffiths, "completely without precedent", with the global financial and banking crisis that emerged in September and October acting as the tipping point as the stock market collapsed and the credit finance system effectively ground to a halt. As a result of November's catastrophic decline in sales, and the likelihood of similarly poor figures in December, forecast planning requires extensive sensitivity analysis. As a result, IHS Global Insight has provided a set of globally consistent alternative scenarios and presented the results for each based on our integrated sales and production trade model.
The three scenarios are:
The Base Case: 50% Probability Assigned
The base macro-economic picture is for a global recession in 2009 whereby global GDP growth is just 1% (IHS Global Insight's 17 November economic forecast release), with the U.S. economy contracting by 1%. The credit system will begin to thaw in the first quarter of 2009 and auto loan access will begin to improve and the recently announced government-backed measures to support sales will start to take effect.
Global vehicle sales in 2009 under this scenario: 63.5 million units (5% decline on 2008's forecast figure).
The Downside Scenario: 38-40% Probability Assigned
An even deeper global economic recession takes effect under this scenario, with global GDP growth of -0.25%, with the U.S. economy contracting by 2.5%. In this scenario the global automotive credit system will remain frozen until the second quarter of 2009. Commodity prices will fail to recover and oil prices will fall below US$40 a barrel.
Global vehicle sales in 2009 under this scenario: 58 million units (12.5% decline on 2008's forecast figure).
The Upside Scenario: 10-12% Probability Assigned
This scenario sees a shallow global recession in 2009, with combined global GDP growth at 1.8% and the U.S. economy growing at 0.45%. This would be dependent on the global credit system freeing up early in the first quarter of 2009 and automotive loans and credit becoming more accessible. This scenario would also see a stronger and more widespread roll-out of governmental measures to improve global auto sales.
Global vehicle sales in 2009 under this scenario: 65 million units (3% decline on 2008's forecast figure).
Taking these various scenarios into account and adjusting for the estimated probabilities, IHS Global Insight has come up with a probability-adjusted average volume of 61.5 million units next year, which is 2 million units down from our current base forecast for 2009. This would see the global automotive market suffer an 8% drop in sales volumes, equating to a 5.2-million-unit fall in sales in comparison to 2008.
Outlook and Implications
The collapse in light-vehicle sales across global mature and emerging markets in November has led to a wide-scale reassessment of sales and production forecasts for 2009. The unprecedented nature of these falls and the extreme volatility in the wider global macro-economic environment mean that it is an extremely difficult task to provide accurate forecasting.
The two main issues that are likely to affect the global light-vehicle market in 2009 are the availability of affordable credit and financing to fuel private and fleet vehicle purchases and the condition of global consumer and business confidence, which would appear, anecdotally at least, to be at an all-time low. The former issue is easier to influence and national governments are already taking the matter seriously. It was announced yesterday that finance company GMAC, which is jointly owned by General Motors (GM) and Cerberus Capital Management, has won classification as a bank holding company, meaning that it qualifies for assistance from the U.S. Treasury's Troubled Asset Recovery Program (TARP), a US$700-billion fund designed to buy up bad debt. GMAC is expected to apply for roughly US$6 billion in bail-out funds, and could potentially sell an additional US$17.5 billion in federally backed loans in order to raise capital (see United States: 30 December 2008: GMAC Granted Bank Holding Company Status, Qualifies for Bail-Out Funds). This amount of liquidity injected into the United States' biggest vehicle financing company could prove a major sales catalyst. However, the other issue of consumer and business confidence is harder to address. Most surveys in developed economies suggest that individuals plan to further rein in spending in the early months of 2009 as a result of concerns over job security, falling property values, and rising levels of personal debt.