Has the Crisis in the Automotive Industry Started

The demand for new cars is declining worldwide, and the main reason is that they have become too expensive

Has the Crisis in the Automotive Industry Started

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Автор: Iliyan Tsvetanov

Financial analysts have summarized new car sales for 2018 and the first half of 2019. They have also predicted how the car market will develop in the near future. According to them, the global demand for new cars is constantly declining, and there are multiple reasons for that. One of the main ones is that the new environmental and safety standards make cars very expensive and consumers cannot and do not want to buy them.

The year 2019 shows a sharp decline in the demand for new cars. According to experts, in the coming years the industry will get over this crisis completely. Many manufacturers will recover and merge into huge concerns. However, some of them may not survive.

What Do Figures Show

- In 2018, about 86 million new vehicles were sold, of which just under 30 million were crossovers and all-terrain vehicles.

- Global car sales in 2018 remain at the level of 2017. Demand for passenger cars and commercial vehicles, however, has fallen by 2.8%. Good sales are observed in Brazil, Russia and South-east Asia. There has been a sharp decline in Europe, China, the US, Argentina and Turkey. In the first half of 2019, India’s auto market collapsed completely.

- The leaders in new car sales in 2018 among the manufacturers are VW Group, Toyota and Renault-Nissan.

- In 2018, there is an increase in the purchase of electric cars – 74% (1.26 million) compared to the previous year.

The Situation with the New Cars

Analysts talk about a start of a crisis in the automotive industry and predict a serious decline in demand for new cars in 2019. The 2020-2021 period could be even worse, since Europe’s strictest environmental standards will come into force. Manufacturers who cannot cover them risk fines of hundreds of millions of dollars. In order to avoid that, they will have to equip cars with expensive technologies, which will further increase their cost.

Experts forecast a decline of at least 3% and a maximum of 5% in the demand over the whole of 2019 compared to the previous year (in quantitative terms, these are huge numbers).

For this reason, car manufacturers reduced their personnel with 70,000 people last year and 38,000 more in the first six months of 2019.

The decline in new car sales has already led to a 0.2% reduction in world gross product.

Studies in 32 countries around the world show that today’s young people, for the most part, do not see the point of owning an expensive car. Instead of spending a lot of money and drawing credits, they prefer to use taxis and various forms of shared travel.

What Are the Reasons for the Decline in Demand?

One of them is called by the experts the “used car tsunami.” Due to the legal requirements for environmental and car safety, manufacturers are forced to equip cars with expensive technologies. This, of course, leads to an increase in the final price of the product. It is difficult for consumers to buy such an expensive vehicle, therefore the demand for new cars is decreasing and that of second-hand cars is increasing.

In cities, realizing the cost of car maintenance (fuel, parking, taxes, maintenance and repairs), residents now prefer not to own a private vehicle but to use someone else’s. Shared services companies are increasing their number of clients by “stealing away” clients from auto makers.

There is an over-production of cars that are similar in their technical characteristics. This is especially evident in the market for light trucks, crossovers and ATVs.

Trade wars between major car manufacturers are also a factor. These problems exist between the US and China/Mexico/Europe/Canada. Great Britain, on the other hand, is suffering from the effects of Brexit.

What Lies Ahead

“The crisis in the automotive industry is just beginning. The worse is about to come,” says Masataka Kunugimoto, Head of the autos and auto parts research division at Nomura. Many others share his opinion. Dozens of banks and financial organizations have officially announced that in the near future, people will buy less and less personal transportation. Experts believe that diesel vehicles will soon become a niche product, since their exhaust emissions will not be able to meet legislative standards. Gasoline cars will be next because major countries, such as China, the United States, India, Mexico, Germany, the United Kingdom and others, are beginning to impose strict restrictions on them.

“Legislative requirements for clean exhaust emissions and fuel economy will further reduce the demand. In other countries, there will be different problems. Due to economic and political problems, global demand for new cars is expected to decline in 2019 in the countries of East Europe and India by about 4-5%. In the US, the reduction will be 3%,” predicts John Murphy from the Bank of America.

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