BRIJa Feb15

There has been a lot of wishful thinking over the past 15 years about the BRIC countries (Brazil, Russia, India and China).  The experts told us they were all going to become middle class overnight, and ensure that global growth continued to motor, even as the West slowed.

Reality has proved rather different, of course.  This makes it all the more important that we keep a close eye on developments in these countries, which are home to 3bn people.

Auto markets are one key area.  I looked at developments in China as well as the US and EU recently, so today I focus on the other 3 BRIC countries, plus Japan.  These 7 markets are 80% of world sales.

Sales for Brazil, Russia, India and Japan (the BRIJ countries) are shown in the chart above:

  • In total, their auto sales volume equal EU sales of 12.4m
  • It has been static at this level since 2012, when President Xi was just about to take office in China
  • Since his arrival, China’s move into the New Normal has changed trade patterns around the world
  • Brazilian and Russian auto sales have felt the immediate pain, whilst Japan has plunged into Abenomics
  • But the outlook for India could be quite promising, if Premier Modi carries through his reform programme

Japan is the largest market of the 4 (blue area).  Its sales peaked at 4.7m in the mid-2000s, and were at this level again in 2014.  But this was only due to an exceptional Q1, when 1.6m cars were sold ahead of April’s increase of VAT to 8%.  Sales in the other 9 months were just 3.1m.  Sales in 2015 will therefore probably stay slow this year, especially if Japan now heads back into deflation as I expect.

Brazil was the 2nd largest market in 2014 at 2.6m, down from its 2.9m peak in 2012.  It failed to diversify its economy during the boom years of buoyant commodity and other sales to China, and is now close to recession.  Its sales fell 7% in 2014, and 19% in January after the government reinstated a 4.5%-7% tax to help boost its weak finances. Dealer inventories are also high, suggesting sales will continue to struggle in 2015.

Russia was the 3rd largest of the four markets in 2014 at 2.5m, down from its 2.8m peak in 2012.  It is used to volatility, with its sales halving to 1.5m in 2009 versus 2008, before rebounding.  January sales fell 24%, and this slowdown looks more serious, with oil and commodity prices weakening, the value of the rouble collapsing, and sanctions in place over many parts of the economy due to Ukraine. Renault/Nissan CEO Carlos Ghosn halted their sales in December, warning of a potential “bloodbath” in 2015 due to the currency crisis.

India was the smallest of the 4 in 2014 at 2.5m, down from a peak of 2.6m in 2012, but may well hold the most long-term promise.  Unlike China, it has underspent on infrastructure over the past 10 years.  But unlike the others, it has a relatively young population, and could gain a ‘demographic dividend’ if it focused on improving basic living conditions.  But these things are easier said than done, and so we will have to wait to see if the promise of Premier Modi’s election campaign is fulfilled.

Overall, recent developments in the 7 major markets do nothing to change my view in October that we have reached “peak car” moment for global auto markets.