2012 Forecast: Markets ‘soft, but positive’

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By Nicole MacIntyre

If dealers want a glimpse of what the year ahead will look like, they need only glance in their rearview mirror.

Industry analysts are predicting a year similar to 2011, with minimal sales growth in Canadian light vehicles sale for a forecast of 1.6 million units.

“The markets are not that bad, but they are not that good,” explains Dennis DesRosiers of DesRosiers Automotive Consultants Inc. “We’re kind of in Never Never Land.”

A good year would see sales above 1.7 million units, while a bad year would be below 1.5 million. A projection in the middle, while not stellar, does mean a predictable, steady year for dealers. In DesRosier’s words the market is “soft, but positive.”

Carlos Gomes, senior economist with Scotia Economics, agrees and offers a similar projection of 1.61 million units.

“It’ll be more of a steady year,” he said.

While globally Gomes expects gains of about four percent, he believes it will about half that in Canada. The Prairies will continue to lead the way, but he’s hopeful that the market will also improve in Eastern Canadian, particularly Nova Scotia, since the announcement of the province’s new ship building deal.

If there is any chance of surprise in the Canadian market in the months ahead, DesRosiers predicts it will be a positive one from the lack of younger used vehicles. A reduction in fleet and leasing in recent years has dramatically reduced the supply of newer used vehicles and driven prices up, he notes.

Consumers may respond to the market change by opting to buy new when they see that the price margins have narrowed. He also believes new car incentives will be as strong as ever as it’s difficult for dealers to pull back after years of promoting offers that consumers now see as the norm.

In terms of market share, DesRosiers believes GM faces the biggest threat this year. Like most analysts, he thinks that Japanese will regain a significant amount of their lost market share as they recover fully from the natural disasters that set them back in 2011.

The expected surge is unlikely to affect Korean or European automakers and DesRosiers believes that of North American brands, GM is the most at risk of losing ground given their position in recent history.

“I think GM is very vulnerable to a Japanese comeback.”

American analysts are eagerly watching to see how country’s automakers fair in this year’s market. In its annual industry perspective, Booz and Company noted one of the biggest questions for the year ahead is whether Japan will be able to reclaim its market share as expected.

The management consulting firm also questions if companies will keep their strategies consistent for the near future.

“Will the Detroit Three maintain their focus on new vehicle development and launches and continue to practice pricing discipline, which favors maximizing profits over volume or market share growth?” asks the report.

It also notes that analysts are expecting the American market to see a bump in light car and truck sales up to the range of 12.5 million, up from 11.6 million in 2010. While some expect it could go as high at 14 million, that’s still far off from the 17.3 million that was seen just over a decade ago, the report highlights.

Paul Taylor, chief economist of the National Automobile Dealers Association, is on the higher end of sales predictions because he believes that aging vehicles, affordable credit and aggressive incentive will convince buyers to go new this year.

Gomes suspects the real story of 2012 will be a global shift in the market that will see car sales in emerging nations surpass the developed world for the first time.

He’s predicting sales in developing nations will increase seven per cent this year, bringing it to 31 million units. It was just a decade ago when these car sales represented less than 20 per cent of the global market.

If there is any risk to the global market, which will be bolstered by strong employment growth and improved interest rates, it is the uncertainty of the European economy, which kept the market reeling in 2011, advises Gomes. If the crisis becomes front-page news again, it could have a negative impact, he says.

“If they don’t fix the problem, it could spread to the overall economy.”