BMI: 2016 could be turning point for industry

The automotive industry has been warned to brace itself for another difficult trading year, although it’s expected to bottom out and 2016 could eventually be a turning point.

That is the forecast of Anna-Marie Baisden, head of autos analysis at Business Monitor International (BMI), who was talking to nearly 200 delegates at the third IBIS Middle East, held in Dubai last week.

The main thrust behind the difficult trading conditions is China’s continued slowdown allied to struggling oil prices. Sales of both consumer and commercial vehicles is expected to suffer as a result, as business and consumer spending is reined in.

Anna-Marie said, ‘2016 is a year of unfinished business. Lots of currencies and commodities still have to find the bottom and we expect this to be the year that happens. So there will still be a bit of pain, particularly in the early months. But on a positive note, we will start to see a turning point.’

Trends

The turning point will look more like stabilisation than improvement, but BMI is predicting a bumper year for innovation, driven largely by increased regulation surrounding fuel economy, safety and connected cars.

Following the VW scandal, emissions will continue to be an industry focal point with real-world testing due to be phased in. Consumer habits are also changing with a substantial growth in car-sharing and ride-sharing schemes. These peer-to-peer and business-to-customer schemes have been ticking along for a while, but BMI expect 2016 to be their breakthrough year with big tech companies and OEMs throwing their weight behind them.

Also looming large in the windscreen is connectivity, and the risks it brings in terms of security and privacy laws. BMI does not believe the industry is prepared to handle such a torrent of information heading its way, and says it will need tightly regulating and a consistent, industry-wide approach.

Bucking the trend

Geographically, there are a few bright spots that are predicted to outperform the global average, if not exactly flourishing. These are Asia, Central and Eastern Europe (CEE), and the Middle East and North Africa (MENA).

Within Asia, India is expected to do particularly well during 2016, bouncing back from a sluggish 2015. This is based on solid demographics and improving incomes, while a strong consumer-profile also makes CEE a stand-out region, especially the Czech Republic and Poland.

But while these regions should perform well compared to elsewhere in the world, it is more a case of them faring less badly.

For example, MENA’s growth will be dampened by regional as well as global conditions. The drop in oil prices will bring huge fiscal challenges and one expected consequence is a rolling back of government subsidies and a general cut back in government expenditure.

Areas of opportunity

However, the premium segment is expected to remain largely untouched – Oman’s automotive industry has struggled generally with volume brands feeling the squeeze as the middle income bracket contracts, but Mercedes reported a 20% growth in the country by contrast.

Another area of opportunity is Iran, with the lifting of sanctions described as one of the biggest things to happen in the region in years. BMI believes there is pent-up demand in the country for Western brands, and points to a recent social media campaign against domestic manufacturers which hiked up prices during sanctions. Brands who operated in the region before and best-placed to capitalise.

Anna-Marie said, ‘We expect a lot of growth in next five years, initially on the sales side, but when they start manufacturing it will kick on again. We predict the market will be worth over 2 million units within next five years.’

Another opportunity could be within greener technologies as emissions becoming an increasingly hot topic in the region and a greater number of taxis and bus companies turn to hybrid technology.

Perhaps the greatest area of opportunity within MENA is in connected cars. There is massive smartphone penetration in the market, particularly 4G, and consumers are expect machine-to-machine connection. This trend is supported by the rise of smart cities, particularly in Dubai.

Anna-Marie said, ‘This is a very connected region. Nissan and Etisalat have already moved in, but we think this is an unexploited opportunity for other companies.’

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