White Paper: Market Report for New and Used Cars Abroad
When considering selling new or used cars in the export market, it is important to think in terms of finding where there is demand for a particular product. In the case of exporting cars for sale overseas, a seller will primarily need to consider if there is a demand for imported vehicles in the target market.
After this consideration, a number of secondary factors arise which are related to the specific makes and models of vehicles in demand in your target market. Lastly, and perhaps most importantly, when thinking in terms of Return on Investment, given the costs, whether vehicle pricing in the target market will justify shipping a vehicle purchased in the United States overseas.
With these considerations in mind, this white paper presents a current overview of demand for vehicles purchased in the US, particularly with an eye toward the markets that show the most growth potential and offer the best chance for a healthy return on investment.
This white paper will take the reader through a number of considerations for exporters attempting to enter foreign markets with new or used vehicles. Also, this report will examine some of the most promising markets and the forces which drive demand in these markets.
Measuring Export Markets
Understanding the best markets for new and used vehicles involves questions of measuring demand in a target market. Also, the cost to get a vehicle to this market.
- Market Demand (Registrations and Sales Data)
This metric measures market demand for specific cars. The most common way to measure is in the number of car registrations and sales data expressed in units and value of cars sold.
- Price in Market
This metric compares the asking price of a vehicle in a market.
It is also important to consider that these metrics are subject to change over time.
Selling new vehicles presents an opportunity in foreign markets that may not be served by certain makers. Further, in countries where certain makes or models may be in short supply, exporters can take advantage of high demand and export a vehicle at a higher profit margin than usual.
Demand for New Vehicles in Overseas Markets
One of the most reliable metrics for measuring demand for new vehicles can be found looking at exports of new vehicles from the United States to foreign markets. From these data, we can establish a proxy for demand by looking at the number of new vehicles originating from the United States to a foreign market.
According to U.S. government trade statistics, in 2014, “the top five export markets for light vehicles (by units) assembles in the United States were Canada, China, Mexico, Germany, and Saudi Arabia. In the period between 2009 and 2014 there has been a significant shift in the top five export markets. For example, in 2009, the top five export markets for vehicles were the same. Since 2009, vehicle exports to Canada have risen 52 percent, exports to China have risen 1,127 percent, exports to Mexico have increased 50 percent, exports to Germany have risen 32 percent, and exports to Saudi Arabia have risen 143 percent.” (1)
Table 1 below represents data on the highest volume overseas new vehicle markets.
Source: United States Department of Commerce (2015)
The following section takes a deeper look at the top performing new car markets.
Canada represents a significant market in North America due to its proximity to the United States and favorable trade regulations. As such, Canada’s new auto sales continue to grow with this figure increasing 3% through the first half of 2015.
According to Goodcarbadcar.com, an auto sales data tracking firm, “Much of the increase has been generated by premium brands. Mercedes-Benz, BMW, and Audi, for instance, have produced 7549 more sales over the first six months of 2015 than during the same period a year ago. Volkswagen’s market share, meanwhile, has grown by more than half-a-percentage point, year-to-date.” (2)
The site reports that, among the brands which experienced growth in the Canadian market, “FCA/Chrysler Canada generated a modest 1% gain as Fiat and Dodge sales slipped sharply. General Motors was up by a more impressive 15%. All four GM brands recorded notable increases. Toyota Canada continued to report discouraging Scion numbers, but a ninth consecutive month of improved Lexus sales, record June light truck sales at the Toyota brand, and car sales improvements at Toyota more than overshadowed oft-ignored Scion.” (3)
The following graphic represents market share in the Canadian market
Source: GoodCarBadCar.net (2015)
China’s market for new cars is massive due to its large population and growth of its middle class and upper class that now have unprecedented amounts of discretionary income. According to Trading Economics, Car Registrations in China have increased by the year 2015 continuing a long-term trend. (4) Similarly, McKinsey Research forecasts that the growth of China’s auto market will slow to an average of 8 percent a year to 2020” with sales forecasted to reach 22 million in 2020. (5)
McKinsey also identifies several fundamental drivers for demand growth that will shape the Chinese auto market in the next ten years:
- Sales of sport utility vehicles (SUVs) will triple.
- Despite SUV demand sedans will remain the largest segment.
- There will be more second-time buyers, and they will buy more high-priced cars (6)
Mexico’s new car market has shown significant growth. According to Yahoo Finance, “Mexico has posted the strongest gains in new car sales across the world this year.” “The auto industry in Mexico is now in the midst of a significant structural change, with the government substantially restricting the number of used vehicle imports. As a result, imports of pre-owned cars and trucks dropped 29% last year and had plunged more than 70% in the opening months of 2015, enabling new vehicles to gain significant market share.” (7)
Despite government efforts to reign in the import of used cars, it is not entirely clear if this growth will translate to higher new car sales as a large portion of the Mexican population are not able to afford a new car. This is coupled with a banking system that is ill equipped to offer competitive financing for new vehicles.
Although at first glance Germany may not seem like a logical destination for US exports, given its high profile auto industry, it is a large market for cars originating from the US. This is due to the massive demand for vehicles in the German market that its domestic industry cannot meet.
As such, passenger car sales in Germany, Europe’s largest market, increased to 313,600 vehicles in the first half of 2015, representing 1.62 million vehicles. When compared to last year’s figures, the German new car market is up 6% year-on-year in August to 226.314 registrations, bringing the year-to-date total to 2.135.459 units, also up 6% on 2014. (8)
According to the US-Saudi Arabia business commission, Saudi Arabia is currently the largest importer of vehicles in the Middle East, accounting for nearly 40 percent of all vehicle sales in the region. (9) New car sales are slated to rise by 6.7 percent annually, crossing the one million mark by 2020. While demand has historically fixated on high-end models, the Saudi market is experiencing a growing demand for smaller, lower-priced cars. (10)
New Vehicle Demand by Make and Model
Demand for vehicles overseas (not by specific market) can further be looked at by the makes and models of vehicles being exported to foreign markets. From these data, some clues as to the demand for certain models can be established.
According to a recent analysis of export trends published in the Wall Street Journal, the primary drivers of demand for U.S. vehicles are Ford SUVs, including the Ford Explorer and Lincoln MKC, to Asia and the Middle East. Further sales of the Mustang sports cars have increased globally. Jeep also has turned into a routine exporter under U.S.-Italian parent Fiat Chrysler Automobiles NV. Last year, it sent 316,000 Jeeps abroad, including the Wrangler and Cherokee, up from 210,000 exported in 2012. (11)
Using export data compiled by the US Department of Commerce, the following makes and models reported growth in the following regions:
- Jeep sales increased 42 percent in the Asia part of auto auction Pacific region and were up 49 percent in China. Sales of Jeep vehicles were up 40 percent in Europe, the Middle East and Africa regions.
- According to Ford, customers in Europe have already ordered almost 5,000 vehicles.
- Ford exported 54,000 Explorers in 2014. In 2012, 200 Explorers were exported to China, but in 2014 that number increased to more than 9,000. In September 2014, Ford began shipping Lincoln vehicles from the Port of Portland to China. By the end of 2014, there were eight Lincoln dealers throughout China.
In 2014, GM exported 233,145 vehicles from the United States, with Canada being its largest export market. GM exported almost 158,000 vehicles in 2014 to Canada. GM’s second-largest export destination was the Middle East, where it exported 44,356 units in 2014. Other notable markets for GM exports for 2014 were Mexico (16,420), China (6,273), Israel (2,947) and Switzerland (1,310).
- GM, which manufacturers in 30 countries, sold a total of 9,924,880 vehicles globally in 2014, up 2 percent from 2013. Its sales in China, GM’s largest market, were up 12 percent in 2014, with over 3.5 million vehicles sold. GM estimated its market share in China increased to about 15 percent in 2014. In 2014, Also, Buick began exporting the latest edition of its Enclave luxury crossover to China.
- Russia is the largest export market for U.S.-made Honda products (10,495 units in 2014), followed by Saudi Arabia (9,939 units) and then United Arab Emirates (6,735 units).
- In 2014, Nissan exported over 63,000 vehicles to Canada, 29,000 to the Middle East, 13,000 to Mexico, 5,000 to Latin America and the Caribbean, 3,000 to Australia, and 2,000 to Korea.
- At the Toyota Indiana plant alone, more than 42,000 vehicle exports were to more than 20 countries. Toyota Indiana exports the Highlander to Australia, New Zealand, and Eastern Europe; the Sienna is exported to South Korea and the Pacific islands, and the Sequoia is exported to the Middle East. Toyota is planning to increase production at its U.S. plants in order to increase exports. Toyota’s U.S. exports have been increasing steadily over the past five years. (12)
Although trade in new vehicles represents the majority of trade in vehicle exports, the used car market can also provide an excellent investment opportunity, particularly in markets that have an inherently high demand for these vehicles.
U.S. exports of used passenger vehicles continue to grow at a rate of over 25%. (13)
The table below shows the top markets for used vehicles.
According to US Department of Commerce, “major markets for U.S. used-vehicle exports are primarily developing countries, led by Mexico, Nigeria, and Benin. The average unit value of exports to these countries was $7,238. Nearly 28 percent of U.S. used-vehicle exports went to low- or lower-middle-income countries in 2013 while only 1.5 percent of U.S. new-vehicle exports went to these countries. (14)
Despite barriers imposed by the government on used vehicles coming into Mexico, used car sales rose 27% in the first half of the year compared with the same period in 2014.
NASDAQ reports that “Compact and sub-compact cars made up more than 60% of the nearly 610,000 new vehicles sold across Mexico through June. About half the vehicles were bought on credit, mostly with financing offered by manufacturers or specialized lenders since Mexican banks make relatively few auto loans.” (15)
According to online car marketplace Carmudi.com, Nigeria displayed the highest year over year growth percentage when it came to motor vehicle related search inquiries last year, with 89% growth. This matches the figures maintained by the US Department of Commerce, who reports a 5 year growth rate of over 115% in exports of used cars from the United States to Nigeria. (16)
The UAE is the second largest automotive market in the Middle East after Saudi Arabia. The UAE relies heavily on imports for virtually the entire supply of cars and light vehicles. The strong domestic demand for automotive products is illustrated by the seventy-five percent of the UAE’s online consumers who plan to buy a new or used car in the next two years, according to Nielsen’s Global Survey of Automotive Demand. (17)
Buying a used car in Benin makes more sense than buying a new car. In four years, between 2010 and 2014, the number of vehicles imported moved from 200,000 to 314,000, representing over 88% in growth. It is important to note that there are a lot of people buying used cars in Benin. However, a large number of the used cars imported to the country are transported to the neighboring Nigerian market. (18)
Imports of used cars into the Jordanian market surged by nearly 45 percent during the first six months of this year, compared with the same period of 2014. Statistics provided by the Jordan Free Zone Investors Commission (JFZIC) showed that a total of 29,394 second-hand cars were imported to the domestic market between January and June of this year, while in the first half of 2014 the number of imported used vehicles stood at 20,712. (19)
Demand in Developing and Emerging Markets
The global auto market can be divided into two main markets, established and emerging, based on the level of demand for vehicles. Established markets are primarily those whose growth potential will be less than an emerging market as the market in established markets is more saturated. In emerging markets, the economies of these countries have developed to a point where consumer spending is beginning to increase thereby creating a high demand for vehicles as consumers begin to have more disposable income.
Developing and emerging market represent a significant opportunity for exporters. According to the US Department of Commerce, “Demand for used-vehicle imports is likely higher in developing countries because of the quality, variety, and low initial cost of U.S. used vehicles compared with the limited availability and costliness of new vehicles in those markets. Developing countries’ lower labor costs also mean that repairs are less expensive in those markets, placing the cost of maintaining an older used vehicle well below that in the United States.” (20)
Drivers for Demand in Developing and Emerging Markets
Demand or used vehicles in developing and emerging markets can be tracked using a number of economic and social metrics, which can provide insight into present market conditions and market potential. These metrics offer insight primarily into the structure of the used car market, particularly the ease by which consumers are able to research and shop for used cars. A second component of demand in developing markets is the consumers’ financial ability to pay for a vehicle, which is measured by GDP figures. As such, a higher GDP in developing markets would represent a great amount of purchasing power among consumers.
Carmudi notes that in some developing markets, auto e-commerce is as high as 80% of new cars, and almost 100% of used car customers begin their car shopping experience online. Evidence of this phenomenon can be seen when looking at automotive Google Search Queries (provided by Google). (21)
A 2013 McKinsey report confirms the finding that in developing and emerging markets auto dealers are no longer the primary source of information, especially for consumers between 18 and 34. The firm reports “Up to 90% of consumers in this group use a mix of OEM and dealer sites, forums, blogs, and social media to gather information and compare prices and offers before making their final decision. Taking to the internet to research and purchase cars shows no signs of slowing down.” (22)
Source: Carmudi.com (2015)
GDP and car Sales
The link between GDP Per Capita and level of car ownership is well documented. As such, countries with low GDP per capita are seen to have a similarly lower level of car ownership as only a few people, even the wealthy ones, can afford a car.
Countries with greater population density tend to improve the public transport system and infrastructure continuously. Also, leading to a lower need for private cars or other types of vehicles. In other emerging markets, where the public transport system and infrastructure improvements are growing slowly, and safety standards are not being met, there is a greater incentive for people to opt for their vehicles rather than rely on public transportation. (23)
The IMF recently projected that the growth of GDP in emerging markets will be substantially higher than in developed economies, within the next five years.
According to the IMF, vehicle ownership accelerates quickly when countries reach an income level of about $2,500 per capita. This rapid growth continues until it reaches the cap, which is about $10,000 per capita. At that income, U.S. per capita vehicle ownership levels hit about 800 per 1000 residents, while European and other OECD countries have around 650-800 vehicles per 1000 residents. China and India, with GDP per capita figures about $7,500 and $3,300, are right in the middle of the rapid motorization phase with vehicle ownership in both countries growing at an explosive rate. The chart below offers a look at the correlation of GDP and motorization rates in our Asia and Africa markets. (24)
Source: Carmundi.com (2015)
When considering investing in an emerging market, two primary factors should play into the decision to invest. The first is the use of the internet for car research and purchases. For an exporter seeking market entry, this has become nearly essential to reach consumers in remote markets.
Secondly, the role of GDP cannot be understated as it is crucial to spurring on car sales. Therefore, one must be mindful of countries that have a established internet penetration and a rising GDP. The markets outlined below meet these criteria as having a high internet penetration and high or rapidly growing GDP.
The BRICS Markets
The five emerging countries that form the BRICS (Brazil, Russia, India, China, South Africa) offer a massive opportunity for car exporters. These countries have offered significant market opportunities for auto sales over the last decade. However, the once dramatic growth rates have slowed to a certain extent, with India and China’s auto markets carrying the group. Despite this drop in sales growth, the BRICS countries should not be entirely discounted as yesterday’s news.
In light of the graphic presented above, KPMG notes that “Even far beyond 2020, China, India and Brazil continue to offer tremendous sales potential, as vehicle ownership rates in these countries will still be well behind that of established markets.” Although China remains a wildcard for smaller scale operations who are not shipping large volumes of vehicles due to trade barriers, a long-term view of emerging markets should certainly consider India and Brazil as markets in which to gain a foothold.
According to an automotive consumer survey conducted in 2014, the following purchasing trends were identified in the BRICS countries.
- Longer lasting vehicles with low gasoline consumption.
- A growing proportion of customers in the BRIC auto markets are expected to demand greener vehicles, which may be a response to the level of pollution in some of the teeming megacities in China, Brazil, India and Russia.
- In-car technology solutions are in greater demand, as people expect a seamless extension of their home or office in-car
- SUVs and other luxury cars in the emerging markets remain in demand.
The BRIC markets of Brazil, Russia, India, and China have generated substantial growth opportunities in the last decade and will remain relevant. Analysts state that concentrating on the BRIC markets alone will be insufficient to ensure longer-term success. (25)
Market research firm BGC identifies the Beyond BRICs markets, as they are referred to, will show high growth (6%) through 2020. This growth rate is four times higher than that in the Triad markets. (U.S., Canada, Europe, Japan, and Australia and New Zealand.)
The following markets are identified as the “Beyond BRICS” markets.
The ASEAN Nations
ASEAN nations are the tier 1 markets of Indonesia, Malaysia, and Thailand, and seven tier 2 markets including Philippines, Singapore, and Vietnam. This market is projected to have annual new-vehicle sales of 4.6 million by 2020, making it larger than the projected Russian market of 4.4 million.
Looking at individual market trends, pickup trucks are very popular in Thailand, holding a commanding market share of 39 percent. Indonesia is dominated by MPVs that have a market share of 51 percent. In Malaysia, 27 percent of all cars are sedans, reflecting the social importance of owning a status symbol
The Emerging Mideast
This market consists of the tier 1 markets of Iran, Saudi Arabia, and Turkey, and 17 tier 2 markets including Iraq, Qatar, Syria, and the United Arab Emirates. This cluster—which includes Iran, Saudi Arabia, and Turkey—will boast up to 5.8 million new-vehicle sales in 2020, overtaking Brazil’s projected 5.2 million.
In these individual markets, Turkish customers prefer compacts and sedans made by European manufacturers. Combined, these two segments hold 54 percent of the Turkish market. Saudi buyers prefer bigger cars such as SUVs and pickup trucks; combined, these two segments currently account for 35 percent of new-vehicle sales. Consumers in Saudi Arabia are strongly influenced by Asian and U.S. brands.
This market is comprised of tier 1 markets of Argentina, Chile, Colombia, and eight tier 2 markets including Bolivia, Ecuador, Peru, Uruguay, and Venezuela. This cluster—which includes Argentina, Chile, and Colombia—has 2.9 million new-vehicle sales projected for 2020, making it nearly the size of the German market (at 3.6 million)
Andean customers demand reasonably priced entry models. GM’s Chevrolet brand dominates the Andean competitive landscape, with a total market share of 18 percent. Its strength is spread across the main markets. It ranks first in Colombia and Chile, and second in Argentina. Chevrolet’s strength is a serious challenge to new entrants, but new OEMs are increasing competition, particularly in the crucial entry-level segment.
The North African Belt
This cluster consists of the tier 1 markets of Algeria, Egypt, and Morocco, and the tier 2 markets of Libya and Tunisia. This cluster which includes Algeria, Egypt, and Morocco—is projected to have 1.2 million new-vehicle sales by 2020. Although it will remain comparatively small, this region is a potential site for promising localization by OEMs—and the gate to Africa.
North African customers have limited purchasing power and, thus, are highly sensitive to price. At the same time, they demand both quality and the durability needed to cope with poor road conditions. (26)
Markets That Could be Susceptible to Decline
The following markets are the most vulnerable to economic forces that could impact the new and used car markets.
On June 2015, new car sales in China have registered a rare market decline, causing concern among worldwide auto makers.
According to China Association of Automobile Manufacturers, passenger car sales rate fell to 3.4%, which is the lowest since September 2012.
Bad news for car dealers exclusive to Asia. South East Asia’s six major new vehicle markets have plunged by 3.8%.
The region’s largest market, Indonesia, continues to show a steady decline since the third quarter of 2014. This was the worst performing car market of the region, with the percentage of decline being over 14%.
New vehicle market in Thailand has shown no sign of improvement this year. Sales have declined up to 11.8%, according to the Federation of Thai Industries.
International Market State: Used Cars
Even though the more cost effective option, used car markets too have been on a steady decline in some parts of the world.
Emerging from the six-year recession of economy, European countries have reduced sales in both the new and used car department.
Sales in Russia have reduced by 25% as of August 2014, which has continued to the beginning of 2015. Also, the main reason identified is the increase in fuel prices in the country.
Unlike North America, sales of used cars in South America have plunged to 15% this year as consumers have been reluctant to buy used cars.
Factors behind the decline
Economic Recession in Individual Countries
Identified as the main reason behind the decline in the market, the automotive industry is yet to recover from the weak economies of individual countries. Regions such as Europe and South East Asia are recovering ever so slowly from a long period of recession. Hence, car market growth has seen an all time low.
Consumer Demand Shift
There is also a change in how many people are willing to spend on cars. Consumers are also asking for more sophisticated gadgets at a lower price in their cars. Demanding high-end features has become standard.
Corporate Average Fuel Economy (CAFE) regulations in the US, as well as higher regulatory taxation in the rest of the world, have proven to be expensive for manufacturers to comply with.
Regulators are also asking for security features to be included as standard in new car models.
Availability of Information
Due to the easy availability of information about cars, car parts and costs on the internet, consumers are more aware of these factors and demanding fair prices after comparing with many other dealers in the market.
Future Market Drivers to Watch
The New Car Debacle
Former booming international markets are fast declining when it comes to new car sales. Former world leader China has seen a rare market decline, causing new car sales to fall to only 3.4%- its lowest figures since September 2012.
A similar bearish trend is observed in the South East Asian region. Indonesia, being the region’s largest market for new cars continues to show a steady decline since 2014. Similarly, in Thailand the sales have declined up to 11.8%.
In Europe, the six-year recession seems to have really hit hard. New cars are not an option anymore as countries such as Greece are falling into debt and being ridicule in the international community.
Illegal exports from the United States
The bolt from the blue has gone to a new level as the United States have made strict regulations on exporting new cars. Illegal exports to China have fueled this kind of sudden changes in the export regulations in the country. Authorities state that fraudulent export activities take place frequently; hence they have been working towards decreasing the flow of luxury cars overseas. New penalties are being ordered for this kind of illegal exports, putting legally exported car market in jeopardy.
Learning from the Japanese
The Japanese have long led the market in used car exports. Making Japanese reconditioned cars a coveted item in developing economies. Japan boasts a great system for recycling materials as well as entire cars. Which can be exported abroad and cost drastically less than brand new cars.
Consumer Demand Shift
A significant change has been noticed in consumer’s dependency on brand names. Gone are the days of coveting cars of a particular brand. This is the main reason behind the decline in the new luxury car market. There is also a willingness to spend on cars that provide value for money and have a sophisticated infotainment system. Also, more sophisticated gadgets at a fair price.
Corporate Average Fuel Economy (CAFE) regulations in the US. As well as higher regulatory taxation in the rest of the world. Have proven to be expensive for manufacturers to comply with. Regulators fear that the illegal exports are hindering their tax flow as well as national security in most cases.
Regulators are also asking for security features to include as standard in new car models.
Used cars are to be exported in the current year. Due to the fact that consumers cannot afford the luxury of brand new vehicles in most economies of the world. Hence, 2015 is the most opportune year for reconditioned and used car dealing.
The main takeaway from this analysis of export markets is that there are numerous opportunities abroad to sell new/used cars. As such, an exporter who is not exporting large volumes of vehicles. Such as a major car manufacturer, has a bit more latitude in selecting a market. This flexibility allows them the chance to pick and choose which market suits their strategy.
With this in mind, an exporter can target several markets, spreading their risk and testing out a number of assumptions. This may lead to a discovery on market conditions that may not have been previously known. This trial and error process can offer a wealth of information that may not be reflected in market research reports.
It is definitely possible that some markets may have untapped demand for certain vehicles. That larger players in the market are unable to exploit or are unaware of. In this sense, being a smaller exporter can offer significant benefits.
The latter portion of this report shows that the popular export destinations are not the only options available to exporters. “Beyond the BRICS Markets” offer prime opportunities for sellers to find buyers of their vehicles. In these markets, demand is high and consumer preferences for certain types of makes and models are very apparent.
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