After we previously reported that UK car registrations just fell at their sharpest rate since the financial crisis, the sharp plunge of auto sales in China has also continued: retail sales of passenger vehicles - which include sedans, MPVs, mini-vans and SUVs - in China fell a whopping 19% in 2018 to 2.26 million units.
In addition, SUV retail sales also fell 18.9% year over year to 965,772 units.
China is spearheading what is shaping up as a painfully anemic year for the industry around the world. The automobile industry in China has been crippled, partly as a result of this trade war, partly due to the ongoing domestic economic slowdown in the mainland, and absent major subsidies - which don't appear to be coming - the outlook for 2019 is not promising.
We wrote back in early December, after reviewing November's data, that the country was set for its first decline in decades. In November, passenger vehicle wholesales were down 16.1% on the year, according to the China Association of Automobile Manufacturers. November vehicle wholesales were also down well into the double digits, dropping 13.9% to 2.55 million units year-over-year. Total retail passenger vehicles fell 18% on the year and SUV sales fell 20.6% year-over-year to 854,289 units, according to the Passenger Car Association.
And as we reported more recently, registrations in the United Kingdom were down 6.8% to 2.37 million vehicles in 2018, according to the SMMT. Diesel vehicle sales were down a massive 30% and gasoline powered models were up 8.7%, showcasing a shifting trend. Electric cars and hybrids were up double digits, posting 21% gains for the year.
Confirming the gloomy picture for the auto sector, Morgan Stanley's auto analyst Adam Jonas was the first to predict that global auto sales would be down 0.3% year over year in 2019 and that many consensus estimates across the industry are far too optimistic. In a note released last week, Jonas predicted "lower guidance" coming out of Detroit automakers at the same time that the global auto market sees its first volume drop since 2009. And despite consensus forecasts predicting revenue and margin growth across the board, Morgan Stanley generally defied the trend, reiterating its cautious view on the US auto sector.
Jonas expects global volume in 2019 to fall to 82.1 million units versus 82.4 million units in 2018. His team also expects higher input costs, combined with rising rates and rising R&D expense, to further pressure 2019 numbers. Aside from the obvious (lack of volume growth), he predicts tariff related costs will still be an overhang for automakers heading into the new year.
Here is a full chart showing Morgan Stanley's predictions versus consensus estimates:
Morgan Stanley also believes that industry consensus for 2019 earnings is too bullish. Currently, the consensus is for all companies to grow revenues by 1% and EBITDA by more than 3%, which implies a 24 basis points EBITDA margin expansion. Instead, Morgan Stanley expects flat revenues and EBITDA down 1%, which would signify a 13 basis point contraction of EBITDA margins.