The fall in growth of demand for cars in the crucial markets of the United States and China will result in the global rate of growth of the car industry dropping to its most year-on-year in 2019 since the global financial crisis of 2007-08.

According to a prediction made by Fitch Ratings economics team on Monday, in 2019, it is expected that there will be a fall of sale globally by about 3.1 million units which will be larger than the drop in 2008. This prediction was made on the basis of data fathered by the International Organisation of Motor Vehicle Manufacturers. Fitch said that this record decline in car sale will also negatively impact the overall global manufacturing and economic growth rate.

“The downturn in the global car market since the middle of 2018 has been a key force behind the slump in global manufacturing and the car sales picture is turning out a lot worse than we expected back in May,” Brian Coulton, chief economist at Fitch Ratings, said in a statement.

In 2018, the number of passenger cars sold globally was at 80.6 million which was lower than the sale of 81.8 million new units during 2017. According to Fitch, that decline was the first decline in the industry since 2008. It is likely that there would be another decline of 4 per cent in worldwide sales in 2019 to touch around 77.5 million new vehicle sales.

The major factor in the worldwide decline this year is the drop in demand for cars in the Chinese market, the largest auto market in the world. During the first 10 months of this year. There was an 11 per cent year over year drop in sale of new cars in the market.

The factors that weighed down on cars sales in China included new strict emissions standards, a rise in used car sales and weak credit growth, Coulton said.

“Structurally, environmental concerns about diesel cars — and anticipated regulatory responses — and the growth of ride-hailing and car-sharing schemes are weighing on auto demand,” he said in an interview.

Car sale in the US, the second largest in the world for cars, is also struggling. A drop in demand has forced production cuts for almost all of the major car companies such as General Motors, Ford and Honda. According to the prediction of Fitch Ratings, there will be a 2 per cent decline in car sale in 2019 to touch a low of 16.9 million new vehicles.

Brazil, Russia and India are among the other large economies where car sales are also down. Decline in sale is also expected to be seen in Western Europe as well.

This however is not the first time that warnings of tough times have been made for the global auto industry. Previous warnings from consulting firm AlixPartners as well as auto data firm Edmunds predicted a drop in auto sale in the US which would put be a drag on auto makers because of rising costs and declining sales.

A rebound in the global auto market in 2020 is also unlikely according to the Fitch prediction.

“While we don’t see a sharp further decline in global manufacturing in 2020, the auto outlook is pointing to a stabilization at best rather than any sharp rebound,” Coulton said.

(Adapted from CNBC.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized