Automobile industry

The automotive industry is the largest private investor in R&D in the EU. The ACEA members together spend over €26 billion every year on R&D, or about 5% of their turnover. These figures, resulting from a recent ACEA survey among its member companies, reflect the great importance that the automobile manufacturers attach to R&D efforts to keep up their competitiveness and long-term viability. Main areas of automotive R&D investment are environment, road safety and production efficiency.

Overall automotive R&D investments are even higher. According to the EU Industrial Investment Scoreboard, the sectors ‘automobiles and parts’ and ‘commercial vehicles and trucks’ represented R&D investment of €32.8 billion in 2008. The actual number will be greater, as these categories do not include all automotive supplying sectors. The Scoreboard ranks the pharmaceutical sector second with €19.8 billion and the telecommunications equipment sector third with €12 billion.

Chart of the week: driving car sales:

Carmakers have had a pretty torrid time since 2009 – GM’s bail-out and Toyota’s product recalls come to mind. So another global slowdown is hardly what the industry needs.

Should the industry pin its hopes on emerging markets? Where are the car sales coming from?

According to Scotia Bank’s December autos report, 2012 will be the year that EMs overtake developed markets in car sales. According to the bank:

We project that car sales in developing nations will expand by 7 per cent in 2012, climbing to 31m units and exceed volumes in the mature markets of Western Europe, North America and Japan. A decade ago, developing nations accounted for less than 20 per cent of global car sales.

The shift to EMs is clear. And, as expected, China is large part of that growth. Even luxury car sales are holding up in China, as Bentley can attest.

Forecast car sales data from IHS Automotive predict that China will be buying over 11m more cars in 2018 than in 2011 – more than a third of the growth in sales over that period.

The comparison with north America is most revealing. The forecast total China car sales in 2018 of 29.6m is more than 10m greater than North America, on 19.3m. China will account for 28 per cent of the world’s car sales in 2018, whereas north America will represent 18 per cent.

But one factor that is missing from all the car sales data is car production: who is making the cars, and where is the demand? The US buys more cars than it produces, making it a driver of growth. China, for years a factory for the world, is now joining the US as a net importer. The chart below shows total sales minus total production for US and China for 2010 to 2018.

The US and Canada are together a net importer, with sales outnumbering production by 2m-3m each year. But China, which in 2010 bought only 253,000 more cars than it made, will see sales outpace production to the point where it is over 2.3m, close to the north America 2018 figure of 2.7m.

In other words – China will join the US as a big net importer of cars, as well as the biggest market in total. That’s good news for Japan and South Korea, and for the crisis-hit European Union economy, which remains a big net car exporter despite its other challenges.