- 2024 global light vehicle retail sales growth is expected to outpace production growth on restored supply-demand balance. Automotive production and retail sales each rose high-single-digits in 2023 on improved semiconductor availability and reduced disruptions related to the Russia-Ukraine conflict and COVID. We expect 2024 light vehicle production to be flattish as automakers focus on value over volume, while retail sales are expected to increase low-single digits based on fairly healthy economic backdrops in the U.S. and Europe, moderating vehicle prices, and sustained consumption stimulus in China.
- Light vehicle price moderation expected to continue in 2024. Average transaction prices (ATPs) remained stubbornly high throughout 2023 before softening 4% YoY in the U.S. during November. We expect sustained price moderation and increased dealer incentives throughout 2024 as industry supply-demand conditions have normalized, while the extent of price softness will be dependent on automaker production and inventory discipline.
- Automotive margins face pressure from price moderation and higher labor costs, partially offset by moderating raw material costs. We expect labor cost headwinds for automakers and suppliers to be partially offset by moderating raw materials prices and lower freight and logistics costs. We expect the Detroit 3 to fully offset the impact of UAW related costs through various means including focused marketing spending, reductions in headcount, among other structural and warranty related improvements.
- Ratings upside potential expected to exceed rating downside risk in 2024. Improved operating performance facilitated by supply chain improvement led to positive rating action on several credits in the auto sector in 2023, including Stellantis, Ford, Schaeffler, among others. We expect tailwinds from improving sector trends and structural cost actions to fuel further positive rating actions in 2024 for Renault, Hyundai, and Kia, with potential positive actions in 2H24 or 2025 for Schaeffler and Valeo, ZF, and Ford (Moody’s).
- Electric vehicle (EV) demand softening expected to extend into 2024. We expect 2024 EV sales momentum to slow in the US owing to affordability concerns and consumer hesitancy to embrace adoption due to factors like range anxiety. In Europe, the obligation to meet emissions targets is met with headwinds as diminishing incentive programs and higher interest rates weigh on consumers. The commercialization timeframe for autonomous or driverless vehicles remains unclear as GM’s Cruise recalibrates its targets following the loss of its California operating license, while Tesla’s autopilot was recently subject to a meaningful recall.
- 2024 new issuance expectations of $37 bn and €34 bn. Our new issuance expectations are based primarily on refinancing captive finance notes that are scheduled to mature in 2024. We believe there is a modest upside to our forecast based on earning asset growth owing to increased captive finance penetration rates. In Europe, we would highlight Schaeffler and Motherson as credits that will need to issue bonds to fund M&A, while Volvo Car, Renault and Valeo will likely be in the market for refinancing purposes. In the US, while we do not rule out the possibility of automotive segment issuance to fund increased capex, near-term debt maturities, or opportunistic M&A by suppliers, we view the occurrence unlikely.
2024 Global Autos Outlook: Fundamentals
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We present Part I of our 2024 Global Autos Outlook with a look into industry fundamentals including our expectations for automotive volumes, vehicle affordability, and pricing. We will follow up with Part II (US) and Part III (Europe) of our outlook, which will focus on relative value both on a sector and individual credit level.
Global Auto Volume Evolution
Automotive Production Volumes
After several false starts in 2021 and 2022, global automotive production volumes finally recovered to pre-pandemic levels in 2023, albeit still below the 2018 peak, as improved semiconductor availability and reduced supply chain challenges supported volume growth in all regions. 2023 global automotive production is expected to post high-single-digit volume growth for the full year. Regionally, production growth was led by low-double-digit growth in Japan/Korea and Europe – both of which were laggards in 2021 – and high-single-digit growth in North America. China is expected to post mid-single-digit automotive production growth for a second consecutive year as volumes increased in 2H23 on the heels of renewed demand stimulus tax incentives. Automotive production growth in the Rest of the World is expected to come in the low-single-digit area following its outsized high-teens growth in 2021. Overall, the improvement in production trends globally provided some much needed relief for the auto sector following multiple years of supply side challenges, most notably for suppliers given operating performance is closely aligned with volume evolution.
Looking ahead to 2024, we expect automotive production volume growth to moderate, with the industry now back into a more normalized supply-demand balance. Global 2024 automotive production volumes are expected to be broadly flat YoY, with China accounting for a larger share of production, North America holding its share, and Europe and Japan/Korea accounting for a smaller share of production. Dealer inventories have been rebuilt from pandemic-era lows, while affordability headwinds related to elevated vehicle prices and high financing costs are suppressing incremental demand growth. We expect low-single-digit automotive production growth in North America as mix shifts to more affordable vehicles and strong employment underpins resilient demand. Production in Europe is expected to be flat to modestly lower as affordability concerns weigh on demand and the Chinese competitive threat intensifies. Chinese production, meanwhile, is expected to be flattish as export growth, particularly to Europe, is offset by sluggish domestic demand despite expectations for sustained demand stimulus.
Automotive Sales Volumes
Light vehicle retail sales rebounded in 2023 as a combination of improved vehicle availability and lingering pent-up demand, was able to largely offset affordability headwinds. 2023 global retail sales are up high-single-digits through November YTD, led by mid-teens growth in Europe and low-teens growth in North America and Japan/Korea. Despite the strong growth, retail sales in Europe and North America remain materially lower than pre-pandemic sales, while retail sales in Japan/Korea and China have largely returned to pre-pandemic levels.
We expect 2024 global retail automotive sales to grow at a low-single-digit pace as affordability concerns constrain demand growth. China is the sole major market in which 2024 retail automotive sales are expected to exceed pre-pandemic levels as demand stimulus and an increasing array of modestly priced vehicle offerings are expected to support increased sales.