#aftermarket – Global passenger vehicle sales started the year with a solid gain, advancing nearly 6% above a year earlier, according to the recently released Scotiabank Global Auto Report. China and the U.S. led the way with double-digit advances, but purchases also gained momentum across Western Europe, rising 6.5% alongside improving economic conditions.
“Global heavy truck purchases have also started to rebound alongside a steep ascent across North America over the past year, improving volumes in parts of Asia, and some stabilization across Western Europe,” said Carlos Gomes, senior economist and auto industry specialist at Scotiabank. “However, the rise will be tempered by ongoing weakness across Latin America and softer demand in China — the world’s largest truck market.”
Recent Global Car/Light Truck Sales Developments Global passenger vehicle sales started the year with a solid gain, advancing 6% above a year earlier. China and the United States led the way with double-digit advances, but purchases also gained momentum across Western Europe, rising 6.5% alongside improving economic conditions. In fact, sales climbed in all of the five largest European markets last month, lifting the annualized sales pace to the highest level since late 2011. In contrast, outside of China, car sales across Asia are being held back by ongoing double-digit declines in both Japan and Thailand. Activity also remains weak across South America, with most countries — except Colombia — reporting a double-digit fall-off in January, a trend that has been in place since last spring.
More recent data for February point to continued solid gains in North America, with volumes in both Canada and the United States advancing above a year earlier. In Canada, car and light truck sales rose 3% y/y alongside record light truck purchases for the month of February. Meanwhile, U.S. passenger vehicle sales climbed 5% y/y, buoyed by a strengthening job market, elevated consumer confidence and low interest rates and fuel prices. As in Canada, light trucks led the way, with SUV sales surging 23% above a year earlier, largely due to a 45% spike in purchases of large SUVs. Rising Freight Volumes Lift Global Heavy Truck Market Heavy truck demand has been on a steep ascent across North America over the past year, is improving in parts of Asia, and has started to stabilize across Western Europe. This performance sets the stage for a rebound in global sales and production in 2015.
However, the rise will be tempered by ongoing weakness across Latin America and softer demand in China — the world’s largest truck market — due to the introduction of new fuel emission standards on January 1, 2015. The North American heavy truck industry has been improving over the past two years, with gains accelerating in recent months alongside record freight volumes. Truck production has ramped up to the highest level in nearly a decade, and further gains are on the horizon as the order backlog has surged by more than 70% over the past year and is approaching 200,000 units for the first time since 2006. Furthermore, with industrial activity across North America expected to advance nearly 4% again this year, and fuel prices sharply lower, industry profitability is on the rise.
According to ACT Research, orders for class 8 trucks (vehicles weighing in excess of 33,000 pounds) surged more than 40% in North America last year, jumping to the highest level since 2004. Production increased 21% in 2014 and is expected to exceed 300,000 units this year for the first time in nearly a decade. However, even with accelerating truck output, record freight volumes have led to demand growth outstripping supply.
Aside from rising freight tonnage, an aging fleet is also supporting higher truck sales. North American retail sales have been below 250,000 units — the annual replacement level required by the industry — in six of the past seven years, and the average age of the trucking fleet still remains near the record 9.6 years set in 2013. Many class 8 trucks purchased during the last cycle peak between 2004 and 2008 are still in operation and are the prime replacement candidates, following several years of minimal fleet expansion. However, it will take several years to lower the average age of the fleet. In addition, truck utilization rates have exceeded 98% since mid-2013, the highest level in a decade and nearly 10 percentage points higher than what was normal prior to the global economic downturn. While North America is leading the recovery in the heavy truck market, conditions are gradually starting to improve in Western Europe.
In particular, strengthening purchasing managers’ indexes — which act as a leading indicator for the heavy truck market — climbed to a seven-month high in February, with new orders posting the largest gain since May 2011. This represents a key development for the global trucking industry, as a significantly higher percentage of freight is carried by trucks in Europe than North America. According to Eurostat, more than 74% of all freight traffic within the European Union is carried on the road by the trucking industry. This compares with a more balanced market share in North America, where both trucks and rail typically have between a 30% to 40% share of the overall freight market.
In fact, new heavy truck sales in Western Europe appear to have started to turn the corner, rising 8% y/y in January, led by solid gains of 58% in the United Kingdom and 22% in Germany — the two strongest economies in Western Europe. This represents a significant improvement from a 6% slide in heavy truck demand last year, with a majority of countries reporting lower sales, due to increased pre-ordering activity in 2013 ahead of the introduction of the Euro 6 emission standards last year. While Canada no longer produces heavy trucks, the improvement in North American commercial truck demand represents a positive development for several Canadian provinces. In particular, tires are one of Nova Scotia’s main exports, as a major global tire manufacturer operates several plants in the province, including a facility dedicated to the heavy truck market.
Tire exports from Nova Scotia jumped 8% last year to a record $1.1 billion, and accounted for more than 70% of the province’s overall manufacturing exports. Given the strength of the North American truck market, the facility received a new investment of $73 million last year. A facility in Quebec still builds medium-size trucks for North America, while several Canadian manufacturers continue to assemble trailers. In contrast to strengthening demand in North America, Western Europe and parts of Asia, the heavy truck market continues to weaken in Latin America, especially Brazil, which accounts for more than 70% of overall sales in the region. Heavy truck purchases in Brazil posted a double-digit decline last year and an even sharper fall-off is likely in 2015 alongside declining industrial activity. Sales in China — which represent about two-thirds of overall volumes in Asia — are also expected to post a mid-single-digit decline in 2015, undercut by some pre-ordering activity in 2014, prior to the introduction of new emission standards earlier this year.