Fighting And Inflation Will Lead To Market Contraction
BMI View: The worsening conflict in Iraq will lead to a 12% contraction in the new car market in 2014, as spending priorities change and trade routes are at risk. Rising inflation will also contribute by pushing up prices of new cars. The market will not return to its 2012 level by the end of our forecast period in 2018.
The worsening security situation in Iraq, particularly around the key autos market of Kurdistan, has prompted us to revise down our car sales forecast for 2014. In line with our view that security would be one of the biggest threats to the industry during the year, the announcement of US airstrikes, as well as potential disruption to trade routes for importers, mean the strong start to the year will end in a contraction of the market (see 'Security And Instalment Plan Creates Car Sales Balancing Act', June 3). While much will depend on the duration of the conflict, we forecast a decline of 12.0%, with average growth for the rest of the forecast period from 2015-18 limited to 3.0% as increased inflation carrying over to 2015 also hits purchasing power.
Car sales in H114 have been reasonably buoyant, with Ghabbour Auto (GB Auto), the distributor for Hyundai Motor in Iraq, posting sales volume growth of 40.0% year-on-year (y-o-y) in Q214 and 4.0% y-o-y for H114. However, the company's quarterly statement for Q2 anticipates worsening conditions in H214 following the surge in violence in mid-June and this is borne out by data released by Renault, which show the total market contracting 14.8% y-o-y in June. This took the year-to-date growth from 6.4% y-o-y for 5M14 to just 0.6% as of H114, to 61,204 units.
|Security Threatens Five-Year Growth|
|Iraq Vehicle Sales And Growth|