The car industry is being watched closely as the global economy stagnates. While global sales of vehicles are predicted to increase in 2013, a closer look at specific car markets reveals that the recovery is uneven, and in some regions it has stalled completely. This year was expected to see global vehicle sales rise by 6.8% to 83.1 million units, according to auto industry analyst WardsAuto, and up a further 4.7% to 87 million units in 2013.
Greenfield investment monitor fDi Markets found the number of components and original equipment manufacturer (OEM) projects had dropped to a three-year low of 558, as of October 2012. But in the past 12 months, the world’s top 10 OEMs have announced numerous projects. Volkswagen, the top investor, has announced 43 new projects.
US shifts up a gear
The US was the top destination country, accounting for one-sixth of the projects tracked, according to fDi Markets. Project volume in the country peaked during 2011, with 201 projects tracked. China has both the highest total and the highest average investment: $62.98bn overall and $169.30m per project.
Although the US car industry has hit its share of pot holes, the government bailout in 2008 has given it an air of stability. While overall US annual car production was cut 20% in 2012, sales are expected to show the best results since 2007. Ford, for example, achieved its highest quarterly profit and operating margin in the third quarter of 2012 in more than 10 years.
Chrysler, now controlled by Italian carmaker Fiat, announced plans to spend $500m at its Toledo, Ohio, assembly complex to make a new Jeep sport utility vehicle (SUV) and add 1100 jobs by late 2013. The expansion is part of a $1.7bn investment to build the new Jeep. By adding the new jobs, Chrysler was granted a job creation tax credit by the Toledo City Council. Chrysler is Toledo’s largest employer.
Europe thrown into reverse
Meanwhile, western Europe is hitting the skids with a predicted decline in sales of 4.2% in 2012, according to WardsAuto. While the European Central Bank’s stimulus plan has brought some stability to the region, it has failed to bring immediate relief to the EU’s struggling car industry. Hence, the industry is facing plunging sales, overcapacity, ballooning inventories, contentious price-cutting and growing operating losses.
Overcapacity in Europe is estimated at between 2 million and 2.5 million units, which could result in factory shutdowns, according to the Centre for Automotive Industry Research at Cardiff University in the UK.
Ford announced in October that it would close its Genk plant in Belgium by the end of 2014 and shift production to Valencia in Spain. In the UK, the company has announced plans to close its stamping plant at Dagenham as well as its Southampton plant, where it makes Transit vans. Ford reports that for the third quarter of 2012 its losses in Europe were up 53% from the same period in 2011.
And closures are expected elsewhere in Europe. Earlier this year, officials at GM’s Opel unit reported plans to close the Bochum plant in Germany some time after 2016. PSA Peugeot Citroën said in July it would shut its plant in Aulnay near Paris in 2014.
Defying this trend, however, in October Fiat decided against shelving its Mirafiori car plant in Turin, Italy, and is considering producing two new mini-SUVs in Melfi in southern Italy. Despite the fact that sales are at their lowest since the 1970s, Fiat wants to boost its export production. Plans are still being finalised. Fiat’s Cassino plant between Rome and Naples is likely to build the Chrysler 100 model, which is set to replace the Lancia Delta. This vehicle will mostly be aimed at the US market.
BRIC tests the brakes
Car sales in developing markets such as Indonesia, Malaysia and Thailand appear to be thriving, though the overall outlook for the car industry among BRIC (Brazil, Russia, India and China) markets is cautious.
While China’s economic outlook has been lowered, the China Association of Automotive Manufacturers expects the country’s passenger vehicle market to climb 11% this year to 16.09 million units. Although analysts are having trouble reaching agreement, with WardsAuto predicting 2012 sales to be 19.5 million units, up from 18.5 million in 2011, with 2013 sales predicted to climb to 20.3 million.
Throwing the brakes on the market, however, was a 2011 change in policy. The Chinese government ended tax incentives for the purchase of small cars and introduced restrictions on the number of cars that can be registered in overcrowded urban areas.
European, South Korean and US cars compete in the market against primarily Chinese cars. From the second half 2011, Fiat will start producing cars in China following an agreement with the Guangzhou Automobile Industry Group.
Japanese car manufacturers are facing tenuous times because of a boycott of Japanese-branded goods based on a dispute between China and Japan over the ownership of a group of uninhabited islands in the East China Sea.
However, Japanese carmaker Nissan, which already takes the lion’s share of China’s car sales, plans to build a $785m plant in the north-eastern city of Dalian by late 2015, part of its enormous Rmb30bn ($4.8bn) investment in China. The company is vying for a premier position against GM, Volkswagen and other global carmakers that are turning to China for growth as developed markets falter.
The Brazilian government has decreased interest rates to a record low and slapped a 30% tax on imported cars and car parts to stimulate domestic sales. A new tax regime promoting foreign investment offers lower taxes for companies investing locally in new technology, R&D, and parts procurement.
Fiat plans to invest $1.7bn in a second plant in Brazil. The new factory, along with an R&D centre, will be located in Suape, a port in the north-eastern state of Pernambuco. Production there is intended for both Brazil and other Latin American countries. Fiat considers Brazil its largest global market.
BMW also has plans to open an assembly plant in Brazil and is in talks with Brazilian officials as to what percentage of parts must be local to qualify for tax benefits. Elsewhere in Brazil, South Korean carmaker Hyundai has started production at its new plant in Piracicaba, São Paulo state, where it has invested $600m.
Other OEMs furthering their investment in Brazil include PSA Peugeot Citroën, which plans to double manufacturing capacity in Porto Real, and Volkswagen, which plans to invest $4.4bn over the next four years.
Russia for growth
The Russian car market is more difficult to predict, although it remains one of Europe's better performers. WardsAuto expects total Russian vehicle sales in 2012 will reach 3.18 million units, up 14.2% from 2011, and in 2013, sales are expected to hit 3.44 million. AutomotiveCompass, a car industry database, forecasts production to grow 6% to 18.2 million in Russia in 2012 and up 12.6% to 20.5 million in 2013.
Some analysts predict Russia could surpass Germany as Europe’s number one car market. GM plans to spend $1bn over the next five years at its St Petersburg plant to ramp up production and double output to 230,000 units annually, while Ford has entered into a 10-year joint venture with Russian carmaker Sollers to make and sell Ford vehicles in the country.
Meanwhile, the Indian car market continues to suffer a sharp downturn due to high fuel costs and economic difficulties. Despite this, Ford has plans to invest $1bn in a car assembly and engine plant in the country. The project represents the company’s biggest investment in Asia.
Although the US market is gaining speed, US carmakers continue to look for growth opportunities overseas. To them, India offers fertile ground. India is the world’s sixth largest car market and is expected to take third place behind China and the US by the end of this decade.