NAFTA’s vehicle market downspeeds as record sales yield to a new normal

Having enjoyed historically high light vehicle and medium/heavy truck sales, the US, Canada and Mexico are braced for an inevitable near-term decline. By Martin Kahl

Despite a declining vehicle market—in 2018, light vehicle sales in the NAFTA region (USA, Canada and Mexico) edged lower by 0.2%—a market of over 20 million cars and light trucks still represents a healthy level for the region, with higher-profit crossover and SUV models making up an increasing proportion of sales.

The situation was very different in the medium and heavy commercial vehicle (MHCV) market, which in 2018 grew by more than 14% to an 11-year peak of just over 607,000 units.

Having enjoyed historically high vehicle sales, the NAFTA region must now prepare for a new normal, one which involves lower sales and an inevitable near-term decline. Jonathan Storey, author of a new Automotive World report which looks at the prospects for the NAFTA region, said, “Both the light- and heavy-vehicle markets are set to decline in 2020, with the heavy-vehicle market expected to experience a typically sharp cyclical downturn.”

Having enjoyed historically high vehicle sales, the NAFTA region must now prepare for a new normal, one which involves lower sales and an inevitable near-term decline

MHCV deliveries are currently healthy, but declining orders in 2019 will be felt from 2020. “Navistar has already announced some layoffs, and other truck makers are likely to follow, once they too have worked through the massive order backlogs built up in 2018,” noted Storey. Added to any existing market uncertainty is the prospect of the ongoing trade dispute between the US and China, possible trading difficulties with other markets and of course the shape of the market should USMCA—dubbed “NAFTA 2”—(ever) be ratified.

“With the US presidential election set to dominate much of 2020, it looks unlikely that the automotive industry will be doing the current incumbent many favours,” added Storey. “And this is the fairly benign scenario, one that assumes the US-China trade war is resolved, that similar disputes with the EU and Japan are avoided and that the anticipated slowing of economic growth in 2020 does not turn into a full-blown recession.” Then there is the prospect of a conflict with Iran and the implications of impeachment proceedings currently being considered against Trump—it is easy to see why the next few years present considerable uncertainty for those reliant on the North American market.

With the US presidential election set to dominate much of 2020, it looks unlikely that the automotive industry will be doing the current incumbent many favours

The geopolitics that could influence vehicle sales come at a time of growing change in the North American—and global—automotive industry. Whether referred to as CASE or ACES, connectivity, automation, sharing and electrification are shaping the future of mobility in all major global markets. In terms of S for sharing, there’s no denying the impact that ride-hailing and ride-sharing is having on vehicle buying habits, with people increasingly considering usership rather than ownership. Vehicle replacement is no longer viewed with the importance it once was, a factor attributed not only to the sharing economy, but also to the longevity of the current generation of vehicles. Micromobility is in its infancy, but clearly some journeys in cities such as San Francisco and San Jose have already been replaced by the use of scooters, for example, even if the numbers appear negligible at this stage.

The E for electrification is certainly a factor in current North American vehicle consideration—especially if the apparent enthusiasm for electric pick-ups eventually manifests itself in sales. However, although the growth is there, notably in California where zero-emission vehicle mandates and credits operate, the numbers are still far from the million-plus unit sales envisaged by the Obama administration. And it remains to be seen what the impact will be of the battle over greenhouse gas (GHG) emissions regulations being fought between the Trump administration and the State of California alongside the 13 other US states that have adopted California’s vehicle GHG rules, with Minnesota and New Mexico poised to sign up.

Micromobility is in its infancy, but clearly some journeys in cities such as San Francisco and San Jose have already been replaced by the use of scooters, for example, even if the numbers appear negligible at this stage

Where the S and the E have already made an impact on the market, however, it is difficult to see how the C (connectivity) and A (automation) will make any significant difference to the vehicle market during the forecast period.

The NAFTA region’s light vehicle sales decline is expected to continue until 2020, with the severity of the decline dependent on the performance of the wider economy. Longer term, the Automotive World report anticipates a recovery in NAFTA’s LV and MHCV sectors to begin midway through the forecast period, but to lower total industry volumes than those currently being enjoyed.

To learn more about the prospects for the NAFTA region’s new vehicle market in the period to 2023, download Automotive World’s latest region outlook: NAFTA’s new vehicle market: prospects to 2023

Close
Close