The firm says that the overall global light market is expected to see growth of 3% this year to over 87 million units. However, several emerging markets are underperforming and the outlook for vehicle sales in some of these previously high growth markets is being downgraded. Slower growth in the emerging markets is creating pressure for the global automotive industry and adding an element of uncertainty for key players that have invested heavily in these markets. 

‘While the US, China and Western Europe continue to be likely sources of expansion in 2014, driving our outlook for the year, a number of large and previously dynamic emerging markets have moved from growth to stagnation, or even outright contraction,’ said Pete Kelly, Managing Director of LMC Automotive. 

LMCA added that the outlook for Brazil and Argentina has darkened over the past year, saying: ‘For Brazil, the inability of the economy to regain rapid economic growth rates has led to a stall in vehicle sales. Future expansion will be delayed. More worryingly, and in the context of weakened markets, a relatively rapid expansion in capacity in Brazil now appears less justifiable. If there is little, or only modest, demand growth over the coming years, utilization levels in South America will be well below desirable levels posing a clear threat to profitability in the region.

‘In Brazil, for example, the expansions by a number of vehicle manufacturers that are underway are aimed at raising overall capacity by 1.3 million units by 2016 versus 2013. This may have made commercial sense 18 months ago, but it may now contribute to a fall in overall South American utilization to 63-65% by 2016. Demand risks appear to be on the downside, so this situation could worsen.’

Jeff Schuster, LMC Automotive's senior VP of forecasting in the Americas, said: ‘Such low levels of utilisation in South America are consistent with financial stresses within the industry. It may well turn out that the drift away from high-income country automotive manufacturing has created over-extension in new localised operations close to the emerging markets that had previously promised so much.’

Within Europe, whilst Western Europe seems to be turning the corner, the same cannot now be said in Eastern Europe, said LMCA. It added: ‘We have yet to see a real downturn in Russia, but all of the fundamentals point towards a weaker market this year, with recovery in 2015 now on a knife edge. The waters are further muddied by events in Crimea, which have already led to a reduction by several percentage points in LMC's forecast. Sales in Turkey – always subject to a high degree of volatility – plummeted in March by 30%, underscoring the effects of political and economic fragility.’

‘A large decline in the total East European vehicle market is not expected, but downside risks in certain countries within the region are clearly rising,’ said Carol Thomas, LMC Automotive's Central and Eastern European analyst. 

For Asia, the firm said that Chinese sales are continuing to expand rapidly – sales were up by 10%, year on year, in the first quarter of 2014 – and, assuming a banking crisis does not emerge, should post solid growth this year.

However, Indian demand remains fragile. The rapid expansion in demand that began in the mid-2000s went into reverse in 2013 as the economy slowed sharply. There is now little prospect for serious growth in 2014. In September 2013, LMC Automotive was forecasting growth of 9.2%; that has been revised down to 3.1%. Given the political and economic uncertainty, the speed and timing of a return to vehicle market growth is subject to a significant degree of, mostly negative, risk. Political trouble in Thailand, a country in which a post-incentive situation is already leading to significant sales decline, poses a further threat.

In summary, the firm said that while only some of the risks to emerging vehicle markets may materialise, the combination of already-reduced baseline expectations and general instability are of increasing concern. However, we must not lose sight of the likelihood that, globally, industry volume remains at record levels, thanks in large part to the expansion in China, completion of recovery in the US, and a West European market climbing out of the depths of the worst automotive recession in living memory.

‘An expansion in the global light vehicle market of around 3% this year – and that implies sales of over 87 million units – is still a reasonable assumption. But the key issue for some industry players will now be how reliant they are on some of the riskier markets in the world,’ said Pete Kelly.