Global Autos 2025 Outlook: Fundamentals

• • Global sales are anticipated to grow at a low-single-digit pace in 2025, driven by improvements in vehicle availability and inventory management, while facing pricing pressures such as tariffs. European light vehicle sales are expected to remain flat year-over-year, with North American sales seeing low-single-digit growth. Auto sales in China, Japan, Korea, and South America are projected to grow at a mid-single-digit pace.
  • With supply-demand dynamics now balanced, OEMs are facing a test of the ‘value over volume’ approach. Despite increased dealer inventories in 2024, OEMs have maintained new vehicle pricing. New vehicle pricing, in relation to dealer inventory levels, will be a crucial factor for OEM operating performance in 2025. Consumers are likely to encounter a mix of price discounts and subsidized financing rates on select models, aiding vehicle affordability and automotive consumer demand.
  • OEMs will need to adjust to tighter emission standards in Europe in 2025. The new standards are expected to have minimal impact on credit quality, even for the most exposed OEMs, as potential fines and compliance costs are manageable within the context of strong OEM balance sheets and stable free cash flow profiles. However, potential headline risks, such as large figures for potential fines reported in the press, may induce additional volatility in bonds and keep cautious investors on the sidelines in the near term.

Sector Trends

Global automotive production volumes in 2024 are expected to decline slightly, breaking a three-year streak of year-over-year production growth. Significant production declines are anticipated in Japan/Korea and Europe, with mid-single-digit drops, while North America is expected to experience a modest low-single-digit decline. In contrast, China is set to post a third consecutive year of production growth, driven by local BEV players’ ambitious growth plans.

The low-single-digit decline in global production is attributed to a shift from supply constraints to softer demand dynamics. Since emerging from pandemic-related shutdowns in 2020, supply constraints from the semiconductor crisis, the Russia/Ukraine war, and various supplier issues limited volume recovery. This narrative changed in the latter half of 2024, with demand trends softening, particularly in Europe. Production volumes are expected to remain broadly flat for 2025, with China slightly better positioned than Europe and North America, though regional production growth trends are not expected to diverge significantly.

Global light vehicle sales grew incrementally in 2024, although volume growth slowed after double-digit gains in 2023. Economic resilience in key regions like the US, along with greater vehicle availability, including more affordable and hybrid models, supported sales improvement despite elevated prices and interest rates. Global retail sales increased at a low-single-digit rate, with gains in North America, Europe, and China offsetting declines in Japan and Korea.