Hanjayeon "Next Year's Car Market, Global Demand Up... Domestic Production Down"

Global Demand Expected to Reach Up to 85.3 Million Units from 81.7 Million
Domestic Production Forecasted to Decrease from 3.6 Million Units This Year to 3.49 Million Units Next Year

[Asia Economy Reporter Kiho Sung] Although the global automobile market next year is expected to be negatively affected by weakening world economic growth, overall demand is projected to increase due to easing semiconductor supply and the impact of backlog orders. However, domestic automobile sales, exports, and production are predicted to slightly decline due to weakened demand in major export markets such as the United States and Europe.

The Korea Automotive Technology Institute (KATECH) announced this on the 21st through its "2023 Automotive Industry Outlook."

Automotive Industry Negatively Impacted by Global Economic Slowdown... Yet Demand Expected to Rise

KATECH forecasted that global automobile demand next year will increase, supported by pre-order demand, despite a pattern of low demand in the first half and high demand in the second half (sangjeohago, 上低下高).

Next year, the slowdown in global economic growth is expected to negatively affect the automobile industry, which is highly sensitive to economic cycles. The International Monetary Fund (IMF) revised down its global economic growth forecast for next year by 0.2 percentage points from 2.9% (announced in July) to 2.7% (announced last month), considering negative factors such as inflation, interest rate hikes, and the Russia-Ukraine conflict.

Nonetheless, major global institutions expect global automobile demand next year to increase compared to this year. Worldwide demand this year is estimated at around 81.5 million units, and next year’s global demand is forecasted to be at least similar to this year at 81.7 million units, with a maximum increase of 4.7% to 85.3 million units.

Regarding this outlook, KATECH explained, "Although the average vehicle selling price is at an all-time high and real new demand is expected to decline due to rising interest rates and economic recession, global automobile demand is predicted to increase considering the easing of semiconductor shortages and millions of units in backlog."

By country, sales in the United States are expected to slightly decrease, and the European Union (EU) is also anticipated to decline due to recession and energy shortages. However, sales in China are expected to maintain an upward trend due to government demand stimulation policies.

Domestic Production Rebounded This Year but Expected to Decline... "Need to Prepare for the Future"

Meanwhile, domestic production, which rebounded this year, is forecasted to slightly decline next year due to reduced demand in the U.S. and Europe. Production this year is estimated at 3.6 million units (up 3.9% year-on-year), and despite a decrease in domestic sales, growth is expected for the first time since 2011 due to export activation. Production next year is projected at 3.49 million units.

KATECH analyzed the domestic automotive industry next year under two scenarios due to high uncertainty. The positive scenario assumes that even if the U.S. and European economies fall into recession and China’s growth rate slows, the global economy will not enter a contraction phase caused by financial crises or COVID-19. In this case, domestic automakers have backlog orders amounting to hundreds of thousands of units, so domestic sales, exports, and production are all expected to slightly decrease.

The negative scenario assumes that with average selling prices of internal combustion engine vehicles and electric vehicles at all-time highs, soaring interest rates sharply reduce purchasing power among middle and lower-income consumers, and the economies of Europe, the U.S., and China?which account for 70% of global automobile demand?experience more severe recession and slowdown than expected. In this case, although domestic automakers showed strong performance this year with record-high market shares in the U.S. and European markets, exports and overseas local production are expected to sharply decline next year.

Specifically, domestic sales are expected to decrease by 0.5% to 1.658 million units, with domestic brand sales down 0.3% and imported car sales down 1.3%. Exports are expected to vary depending on electric vehicle exports to the U.S.; if South Korea receives an exemption from the Inflation Reduction Act (IRA), the decline will be limited, but if not, exports are projected to fall sharply by 4.2% to 2.1 million units. Consequently, due to weak domestic sales and exports, domestic production is expected to decrease by 3.0% year-on-year to 3.49 million units.

KATECH predicted, "Even if global automobile demand increases next year, domestic sales, exports, and production are all expected to decline."

This content was produced with the assistance of AI translation services.