PWC Quarterly Automotive Forecast Update: 2011: Recover, Rebalance, and Rebound

London UK January 16, 2011; Despite lingering uncertainties that persist in some regional economies, the recovering automotive sector is well-prepared to embrace a new era of global growth. A resilient and rebalanced auto landscape across both mature and emerging markets should deliver impressive results in 2011. Rather than being remembered as yet another period of precipitous emerging market growth, 2010 may be more broadly viewed as a year that yielded global auto industry recovery. Of the 13.3 million units of incremental light vehicle assembly in 2010 over 2009, Autofacts estimates that 68% of that build was derived from recovery volume, while 32% was new organic growth.

In the final quarter of 2010, the surprising strength of assembly recovery in the European Union (EU) prompted Autofacts to make an upward revision of 450k+ units in 2010 as previous expectations of a weaker Q4 only materialised in isolated cases. Instead, the EU assembly footprint rebuilt volumes through increased export demand in recovering and expanding markets like the US, China, and Russia. While sequential assembly gains in 2011 are likely to push global auto industry output over 75 million units for the first time, growth is expected to be more balanced as recovering countries added nearly 9 million units of output in 2010, but will likely contribute ~2 million units in 2011, a volume similar to that expected from countries largely unaffected by economic recession.

The global outlook in 2011 will also be shaped by the following three factors: US light vehicles sales recovery, Chinese market dynamics, and global premium vehicle growth.

Autofacts modeling indicates that 12.5 million units of US light vehicle sales is a realistic scenario for 2011 even without substantially improved employment figures, a major upturn in housing, or rapid credit expansion. While this baseline sales forecast is mindful of the industry's current profitability at ~11.5 million units annually, moderate near-term upside potential is mitigating much of last quarter's downside risk.

China's growth is expected to moderate as the government winds down market incentives. Instead of the 33% YoY growth in sales recorded in 2010, Autofacts expects a 20% increase. However, with GDP per capita in China now over the $7,500 threshold at parity (when sales tend to surge), Autofacts does not envision the possibility of single-digit growth in the short-term.

Due to booming global demand, premium vehicle manufacturers are facing capacity constraints - a major concern given that a future Chinese market could effectively double the global premium market assuming penetration levels similar to that of Europe and North America.