The Global Bus and Coach (GVW>6t) market witnessed sales decline by -3.9% YoY in the third quarter of 2017. The most noteworthy declines were in UK and India. For growth, we look to Western Europe, Argentina, South Africa and Korea, and most strikingly Brazil and Turkey, who rebounded strongly following a lengthy period of decline.
In China, bus sales showed signs of recovery in Q3 2017, with less significant declines of 1.9% YoY, compared to a weightier -27% YoY contraction over the first half of the year. We expect Q3 to be a turning point for bus demand, where negative demand distortions, caused by State V emission standard enforcement and the reduction in New Energy Vehicle (NEV) subsidies, dissipate and bus sales return to growth. Furthermore, bus sales are expected to surge over the final quarter of 2017 as manufacturers make the most of higher funding before overall subsidies are reduced and the technical threshold for eligibility is tightened at the turn of the year. It is our understanding that the subsidy will be gradually phased in from February 2018, with a four-month transition period to limit the impact on the market and allow manufacturers a grace period to upgrade their capabilities. Over the longer term, the government has announced plans to incrementally phase out the NEV subsidy each year until 2020 when it will cease altogether. The State VI emission standard deadline for heavy duty vehicles is set for July 2021, which should cause the usual peak and trough profile either side of this date.
Indian bus and coach demand slumped for the third consecutive quarter as sales fell by a further 20% YoY in Q3 2017. The Indian bus market is still recovering from a variety of structural reforms (See the previous edition of this article for more information) and weak State Transport Undertakings (STU), caused by a less favourable funding model for urban transport. In combination, each of these factors has contributed to declining bus and coach sales so far this year. On a brighter note, the forthcoming scrappage scheme and the ambitious BS IV emission standard implementation date are set to drive demand over the medium-term, although a period of payback is expected from April 2020 (post-BS VI). The general outlook for the Indian bus market remains optimistic, with only an estimated 1.4 buses per 1000 people (far lower than most developing economies) it is clear that potential demand for public transport is high. Moreover, with infrastructure spending and urbanisation on the rise and the negative effects from policy reform set to subside it should not be too long before bus demand picks up again.
In Brazil, bus sales marked the second successive quarter of growth, with a modest uptick of 1.3% YoY in Q3 2017. Prior to Q2 2017, bus sales recorded thirteen consecutive quarters of YoY declines, due to the economic recession and political instability which beset the country. As a result, the government has been forced to tighten its fiscal spending and iron out various macroeconomic imbalances, which has resulted in funding cuts over the last few years. Nevertheless, as the economic climate has improved, expanding for the third successive quarter, and with new bus sales at such a low base, the government has rolled out a series of financing schemes and stipulations to ramp up demand. These initiatives include the financing scheme, Refrota 17, and a new maximum age cap for buses running on interstate and international lines - imposed by Agência Nacional de Transportes Terrestres (ANTT). These schemes are expected to have a positive impact on demand over the coming years, with sales anticipated to rise steeply from Q4 2017 onwards.
The EU+2 bus market grew by 2.6% in the third quarter of 2017. The upturn was supported by robust sales in France (3.8%), Iberia (8%) and Poland (8.8%). However, growth was weighed down to an extent by declines in Czech Republic (74.4%), Italy (11.7%) and UK (18.2%). In the UK, economic and regulatory uncertainty residing over the Brexit transition continues to dampen confidence, which subsequently deters fleet renewals. This decline has been further exacerbated due to a reduction in bus subsidies. In addition, British bus manufacturers have had to contend with less favourable exchange rates which, due to supply chains heavily engrain in Europe, have pushed the cost of manufacturing upwards. Nevertheless, the overall picture in the EU+2 bus markets seems relatively upbeat, with a comparatively positive economic outlook, and with a commitment to reduce emission levels we forecast new bus sales to grow at a compound annual growth rate (CAGR) of 3% over the forecast horizon.
Looking further east, Russia and Turkey posted mixed results of -1.4% and 11% respectively in Q3 2017. In Russia, the slight decline in the third quarter followed strong growth of 27% in H1 2017. We forecast sales to bounce back in Q4 2017 and over the first half of 2018 as demand is boosted by continuing bus procurement programmes, the forthcoming World Cup and the improving macroeconomic climate. In Turkey, the double digit growth rate in Q3 2017 is somewhat flattering, considering new bus sales YTD are at the lowest levels since the global recession. Whilst the economy has been buoyant, bus demand has been lacklustre. Demand has slumped, as a result of limited funding and falling tourism levels, due to a number of reasons. Bus sales are predicted to remain low in Q4, with demand anticipated to pick up in 2018 and over the forecast.
In NAFTA, sales fell by 1.6% in Q3 2017 YoY. Over the quarter, Canada and Mexico saw bus sales plunge by 21.9% YoY and 4.2% YoY, respectively, whilst the U.S. bus market grew, albeit slowly at 0.7% YoY. The decline in Canada is largely unsurprising, considering base effects off a record breaking quarter in Q3 2016 - backed by a spike in local funding. In the U.S., sales were relatively flat off of a comparatively high base on 2016. Annually, bus demand is notoriously high in the third quarter as school bus demand peaks prior to the start of a school year. In Mexico, bus sales dipped in Q3, but we forecast growth for the full year, thanks in part to solid economic growth. Looking ahead over the NAFTA region, the forecast remains virtually unchanged, with growth expected to average 1% through to 2025. Even so, some downside risks remain, which include the degree of uncertainty over the NAFTA trade agreement and ambiguity over the impact of the well-publicised plans to increase infrastructure investment in the USA.
We have recently published our 2018 Global Bus Annual Report. This publication provides a clear and comprehensive insight into the factors and developments affecting the bus and coach sector, as well as analysis on the key players within this segment. Furthermore, the report offers eight-year sales and production forecasts for over forty major markets across five regions and is published in conjunction with ACT Research. For more information, or a product sample please visit our website at www.lmc-auto.com, send us an email to email@example.com or telephone our head office on +44 1865 791737.
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