THE GLOBAL HEAVY BUS AND COACH MARKET: 2018 Q1 UPDATE

Global

As expected, global bus and coach sales (GVW >6t) declined by 5% in 2017. Much of this decline can be attributed to a variety of economic and policy reforms in China and India which have negatively impacted bus demand over the last year. Encouragingly, global bus sales spiked in Q4’17 (6% YoY), as demand surged in China (13% YoY) ahead of the New Energy Vehicle subsidy cut at the turn of the year. Furthermore, growth was spurred on by the improving macroeconomic climate and the release of credit in Mercosur, which drove growth of 57% YoY in Q4. The most notable declines in 2017 were in China (6%), India (14%), the ASEAN region (15%) and the UK (9%). This year, we forecast the global bus market to rebound and expect growth of 3% - with demand picking up in the emerging economies.

China

Following three consecutive quarters of YoY decline, bus sales in China rebounded strongly in the final quarter of 2017, with eye-catching growth of 13%. Bus sales in the last three months accounted for 46% of total sales in 2017. This upward spike in demand was primarily as a result of bus buyers purchasing electric buses before the technical threshold for the New Energy Vehicle (NEV) subsidy was upgraded at the turn of the year. This year the NEV subsidy was cut by up to 40% and amended to favour vehicles with longer battery ranges. We expect a similar degree of seasonality distortion to continue as the NEV subsidy is progressively phased out by 2020. Looking at the full year in 2017, sales receded by 6%. This decline was primarily due to the implementation of the Euro V emission standards and NEV subsidy upgrade in January 2017 which incentivised a high number of pre-buys in the latter half of 2016, offset by a payback period in 2017.

For 2018, we forecast resilient growth of 2%, with the seasonality profile remaining similar to last year. Sales will be boosted by high infrastructure spending and high demand for cleaner emitting vehicles. Of note, from July 2018 and applicable to buses, import tariffs for automotive vehicles and parts will be cut from 25% to 15%. This will increase the attractiveness of importing parts and reduce the overall cost of manufacturing. 

In regards to the continuing tit-for-tat tariffs between China and U.S. it is unlikely to have a significant effect on the bus market, for now. At present, we have not adjusted our forecast as a result of the further threats of a full blown trade war. However, the increasing likelihood could fuel inflation and undermine job and income growth - especially in export-dependent provinces. In addition, if the Chinese economy is to slow, as a result of the trade war, it is probable the Chinese government will launch some kind of stimulus measures to offset this. 

India

In the final quarter of 2017 Indian bus sales remained in the doldrums - declining 19% YoY. The Indian bus industry faced a number of hurdles last year which contributed to FY sales depreciating 14% from 2016. The bus market was weighed down by a series of economic and policy reforms, such as the Goods and Service Tax, demonetisation and the BS IV emission standard implementation. Furthermore, demand was subdued as state transport undertakings (STUs) orders slumped and the roll out of the bus body code caused a degree of uncertainty.

Looking at this year, we expect sales to rebound strongly from Q2 onwards and forecast double digit growth of 11%. This growth will be driven by stronger infrastructure spending and restored confidence as the negative effects from the economic reforms from last year fade. These factors will encourage fleet buyers to renew and expand their aging fleets.

We expect this positive outlook to continue over the horizon, and we forecast a compound annual growth rate (CAGR) of 7% over the medium term. However, whilst we are optimistic on growth there remain some factors - particularly in the short term - which could impact demand. These include rising fuel prices and the weakening of the rupee.

Brazil

Following three years of decline the Brazilian bus market rebounded in 2017 and witnessed resilient FY growth of 5%, albeit from a very low base. The pick-up in bus demand coincides with the improving macroeconomic climate, which resulted in the economy coming out of recession and GDP expanding by 1% in 2017. In the final quarter of 2017 bus sales skyrocketed by 72%, which was spurred on by improving confidence and the release of funds under the Refrota 17 financing program. The Refrota 17 program aims to renew up to 10% of the urban fleet by financing the purchase of 10,000 new urban buses. For 2018, we expect a surge in demand and forecast FY growth of 16%. This growth will be stimulated by low interest rates, the Refrota 17 program and the requirement for fleet owners running buses on interstate and international lines to reduce the average age of their fleet from 8 years to 6 years in 2018.

Russia

Bus sales in 2017 surpassed 12,000 units (12% YoY) for the first time since 2013. The pickup in demand was supported by the improving macroeconomic climate and a number of government backed programmes to aid Russian bus manufacturers, replace old fleets and procure buses ahead of the World Cup in 2018. We forecast FY sales to grow by 4% in 2018, with the bulk of sales occurring in the first half of the year to accommodate the influx of tourists ahead of the World Cup in June 2018. Bus demand is projected to remain strong over the forecast, with a CAGR of 3% from 2017 to 2025.  This will be driven by the renewal of aging fleets and the replacement of dirtier emitting buses.

EU+2

The final quarter of 2017 witnessed bus sales decline by 1% YoY in the EU+2 region. The downturn in Q4’17 weighed down on full year sales, resulting in modest growth of 1%. The big five economies in Western Europe had mixed fortunes in 2017, with robust growth in Spain (8%) and Italy (21%) offset by declines in Germany (1%), France (1%) and the UK (9%). The largest gains in the EU+2 came from Eastern European countries that rebounded strongly after declines in 2016 to post growth of 11%. This year, we expect sales in the EU+2 to grow by 3% as demand picks up in Germany (2%) and France (1%), and buoyant city bus renewals bolster sales in Italy (22%). The most noteworthy decline is expected to continue in the UK (8%) as ongoing economic and regulatory uncertainty clouds confidence.

 NAFTA

In North America, the class 4-7 school bus market recorded its seventh consecutive year of growth in 2017 as sales surpassed 42,000 units (2%). This impressive run rate was heaped on by resilient sales in the final quarter of 2017 (4% YoY). By country, Mexico and USA witnessed 2017 FY sales exceed 5,000 (3%) and 35,000 units (3%) respectively, whilst growth was dampened to some extent by decline in Canada (9%). The downturn in Canada was foreseen, after a strong 2016 which was boosted by an increase in funding. This year, we expect the demand for school buses to cool off somewhat, following a prolonged period of post-recession growth. We forecast declines in the U.S. (2%) and Canada (10%) whilst we expect Mexico to buck this trend and post double digit growth of 13%. Overall, we expect the region to decline by 1% in 2018, whilst the long term average growth remains unchanged at 1%.

*Global Topline forecast available - download PPT at the bottom of this article*

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.

 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 forecasting@lmc-auto.com or telephone our head office on +44 1865 791737.

 

 

 

 

 

 

 

 

 

 

 

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