The global bus and coach market continued its downward trajectory from Q1 into Q2, with sales falling by 11% YoY in Q2, contributing to a decrease of 13% YoY over the first half of the year. This dip is largely a consequence of large declines in China and India following policy change, which has negatively impacted bus and coach sales. In addition, Brazil and Turkey have seen sales fall in the first half of the year, with the latter hindered by recent political uncertainty and the former constrained by a recessionary economy, both of which have impacted on fleet renewals. Nevertheless, the second quarter’s outturn indicates that the Brazilian bus market is set to rebound (slowly) following an upswing in FDI and positive economic activity. The other major South American market, Argentina, backed by strong macroeconomic fundamentals, is also experiencing a surge in bus and coach sales, so bus sales in the region as a whole are set to show improvements. In addition, Russian bus demand has soared year-on-year and Japan is on track to post a second consecutive record-breaking year of bus sales growth in the midst of a tourism boom. Also noteworthy: North America and Korea have experienced resilient growth in the first half of 2017.
China bus and coach sales fell by roughly -27% YoY in the first half of the year. This slump in sales is primarily a result of the introduction of the State V emission standards at the start of the year, as well as the government’s decision to slash the New Energy Vehicle (NEV) subsidy. Although rather blunt in its administration, the NEV subsidy cut of 50% was not completely surprising following high-profile cases of fraudulent behaviour by some manufacturers. The amended version of the new NEV subsidy raises the technical threshold for manufacturers (favouring electric vehicles and fast charging systems), as well as ensuring the vehicle is now verified presale before subsidising it to prevent falsified claims. Moreover, the government has proposed a timeline to incrementally cut NEV subsidies so they phase out before the state VI emissions standard deadline in July 2020. Over the last few years, NEV subsidies have been a boon for electric bus and coach demand and, noticeably, the cut has had a negative impact on sales in the first half of the year. Nevertheless, we anticipate NEV sales to rebound in the second half of the year and demand for NEV’s to continue to grow over the forecast period.
The Indian bus and coach market has seen sales fall in the first half of the year by over 9% YoY, or 2,500 units. The contraction in bus sales over this period, as for China, is mainly attributable to policy distortions caused the implementation of a series of recent structural reforms by India’s central government, as well as the introduction of Bharat Stage (BS) IV emission standards from April 2017. More specifically, the introduction of India’s demonetisation policy at the end of 2016, enacted to clamp down on illegal tender and to improve tax compliance, led to a short-term fall in liquidity. The temporary cash shortfall has hit multiple sectors and driven down bus order intake. Over the next few months, we expect sales to continue to decline as a consequence of BS IV’s implementation, although, to some extent, we anticipate the fall to be cushioned by strong domestic economic activity. Additionally, the automotive industry is likely to be impacted by the introduction of the Goods and Service Tax (GST) Bill in July 2017 to make tax levels uniform over state lines, but whether this will be negative or positive has been a source of much debate. The aim of this Bill (and demonetisation for that matter) is to increase the ease of doing business within India to encourage investment. According to The World Bank’s namesake index, India is 100th of 190 countries as of June 2017, up 30 places from a year ago, so these changes appear to be having the desired effect. For buses specifically, we assume the GST Bill will reduce the cost of production, the benefits of which are likely to be passed on to the consumer, as well as facilitate the development of a long-distance transport industry. Indeed, Volvo-Eicher CV has recently cut the price of their buses due to savings they now make in production. In a competitive market such as India, we suspect it will not be long before other OEMs follow suit and buses become more attractive to buyers.
After a disappointing start to the year (-34% YoY in Q1), Brazilian bus and coach sales rallied to post year-on-year growth of 5% in Q2 2017. The uptick in bus sales in Q2 marked the first quarter of YoY growth since 2013, although the net decline of 14% YoY in the first half of the year is still considerable. In line with expectations that Brazil will return to economic growth this year, we anticipate that bus and coach sales will grow 2-3% in 2017. Across the border, Argentina, Brazil’s biggest trading partner, has seen sales rocket in the first half of the year, growing 59% YoY. With the economy growing and infrastructure spending picking up, this has strengthened bus and coach demand. Looking forward, sales are likely to almost double YoY in 2017 before tailing off somewhat and flattening out over the forecast horizon.
The EU+2 bus market contracted by 0.5% YoY in H1 2017. The first half of this year saw something of a role reversal from last year with West Europe in slight decline and East Europe posting growth. Even so, it has been the high-volume markets of Germany (+10%) and Spain (+18%) that have gone someway to offsetting the decline in France (-16%) and some Scandinavian countries (Norway: -43%, Sweden: -42%) over H1 when compared to the same period in 2016. Nevertheless, we expect the fall in Q2 to be a blip rather than a trend, and with geopolitical uncertainty likely to subside and investment to return to the East as the year progresses, we expect stronger growth of 6-7% for the EU+2 region as a whole this year. Strong growth in Germany has come directly from increases in the coach segment since the liberalisation of the long-distance transport industry with even more demand expected to be realised in 2017. With this in mind, other EU member states may see a similar increase in long-distance coach sales following the European Commission’s Directive on Passenger Coach Service within the Clean Mobility Package, which discusses ways to stimulate a development of bus connections over long distances to offer better alternatives to car use. As such, we anticipate coach fleet expansion to continue to bolster sales of these vehicles in other European nations in the medium-term.
Within our extended view of Europe we consider Turkey and Russia. In Turkey, bus and coach sales fell -20% YoY in the first half of 2017, mainly due to political uncertainty within this country and current conflict in the surrounding region. By contrast, the Russian market has seen an upswing in sales of +28% YoY in H1 2017. The jump in demand has been supported by the government investing 3 billion roubles into updating the school bus fleet, as well as a boost in sales ahead of the Confederations Cup in 2017 and the World Cup in 2018. The outlook for the EU+2 remains positive; we forecast the bus and coach market to pick up in the second half of the year, with sales posting +6% YoY.
In North America, class 4-7 bus and coach sales started the year strongly with a growth rate of 5% in the first half of 2017. Each NAFTA country saw positive YoY growth in H1; Mexico (+3.7%), Canada (+1.6%) and USA (+5.1%). Economically, the NAFTA region experienced a solid outturn. However, risks to the economy remain, one being the cloud of uncertainty over prevailing policies in the USA and its risk to economic growth. This in turn could have an impact on the bus and coach sector, although, for now the outlook for the North American market remains unchanged, with sales predicted to remain relatively flat, seeing a slight uptick of 1% YoY over the forecast horizon.
This information is provided by LMC Automotive and based on our previous quarter’s Global Bus Forecast. More up-to-date and in-depth data and analysis is available on request. If you are interested in learning more about further services that LMC Automotive is able to provide, please visit our website at www.lmc-auto.com, send us an email to firstname.lastname@example.org or telephone our head office on +44 1865 791737.