When considering selling new or used cars in the export market, it is important to think in terms of finding where there is demand for a particular product. In the case of exporting cars for sale overseas, a seller will primarily need to consider if there is a demand for imported vehicles in the target market.
After this consideration, a number of secondary factors arise which are related to the specific makes and models of vehicles in demand in your target market. Lastly, and perhaps most importantly, when thinking in terms of Return on Investment, given the costs, whether vehicle pricing in the target market will justify shipping a vehicle purchased in the United States overseas.
With these considerations in mind, this white paper presents a current overview of demand for vehicles purchased in the US particularly with an eye toward the markets that show the most growth potential and offer the best chance for a healthy return on investment.
This white paper will take the reader through a number of considerations for exporters attempting to enter foreign markets with new or used vehicles. This report will examine some of the most promising markets and the forces which drive demand in these markets.
Measuring Export Markets
Understanding the best markets for new and used vehicles involves questions of measuring demand in a target market and the cost to get a vehicle to this market.
- Market Demand (Registrations and Sales Data)
This metric measures market demand for specific cars. The most common way to measure is found in the number of car registrations and sales data expressed in units and value of cars sold.
- Price in Market
This metric compares the asking price of a vehicle in a market.
It is also important to consider that these metrics are subject to change over time.
Selling new vehicles presents an opportunity in foreign markets that may not be served by certain makers. Further, in countries where certain makes or models may be in short supply,exporters can take advantage of high demand and export a vehicle at a higher profit margin than usual.
Demand for New Vehicles in Overseas Markets
One of the most reliable metrics for measuring demand for new vehicles can be found looking at exports of new vehicles from the United States to foreign markets. From these data, we can establish a proxy for demand by looking at the number of new vehicles originating from the United States to a foreign market.
According to U.S. government trade statistics, in 2014, “the top five export markets for light vehicles (by units) assembled in the United States were Canada, China, Mexico, Germany, and Saudi Arabia. In the period between 2009 and 2014 there has been a significant shift in the top five export markets. For example, in 2009, the top five export markets for vehicles were the same. Since 2009, vehicle exports to Canada have risen 52 percent, exports to China have risen 1,127 percent, exports to Mexico have increased 50 percent, exports to Germany have risen 32 percent, and exports to Saudi Arabia have risen 143 percent.” (1)
Table 1 below represents data on the highest volume overseas new vehicle markets.
Source: United States Department of Commerce (2015)
The following section takes a deeper look at the top performing new car markets.
Canada represents a significant market in North America due to its proximity to the United States and favorable trade regulations. As such, Canada’s new auto sales continue to grow with this figure increasing 3% through the first half of 2015.
According to Goodcarbadcar.com, an auto sales data tracking firm, “Much of the increase has been generated by premium brands. Mercedes-Benz, BMW, and Audi, for instance, have produced 7549 more sales over the first six months of 2015 than during the same period a year ago. Volkswagen’s market share, meanwhile, has grown by more than half-a-percentage point, year-to-date.” (2)
The site reports that, among the brands which experienced growth in the Canadian market, “FCA/Chrysler Canada generated a modest 1% gain as Fiat and Dodge sales slipped sharply. General Motors was up by a more impressive 15%. All four GM brands recorded notable increases. Toyota Canada continued to report discouraging Scion numbers, but a ninth consecutive month of improved Lexus sales, record June light truck sales at the Toyota brand, and car sales improvements at Toyota more than overshadowed oft-ignored Scion.” (3)
The following graphic represents market share in the Canadian market
Source: GoodCarBadCar.net (2015)
China’s market for new cars is massive due to its large population and growth of its middle class and upper class that now have unprecedented amounts of discretionary income. According to Trading Economics, Car Registrations in China have increased by the year 2015 continuing a long-term trend. (4) Similarly, McKinsey Research forecasts that the growth of China’s auto market will slow to an average of 8 percent a year to 2020” with sales forecasted to reach 22 million in 2020. (5)
McKinsey also identifies several fundamental drivers for demand growth that will shape the Chinese auto market in the next ten years:
- Sales of sport utility vehicles (SUVs) will triple.
- Despite SUV demand sedans will remain the largest segment.
- There will be more second-time buyers, and they will buy more high-priced cars (6)
Mexico’s new car market has shown significant growth. According to Yahoo Finance, “Mexico has posted the strongest gains in new car sales across the world this year.” “The auto industry in Mexico is now in the midst of a significant structural change, with the government substantially restricting the number of used vehicle imports. As a result, imports of pre-owned cars and trucks dropped 29% last year and had plunged more than 70% in the opening months of 2015, enabling new vehicles to gain significant market share.” (7)
Despite government efforts to reign in the import of used cars, it is not entirely clear if this growth will translate to higher new car sales as a large portion of the Mexican population are not able to afford a new car. This is coupled with a banking system that is ill equipped to offer competitive financing for new vehicles.
Although at first glance Germany may not seem like a logical destination for US exports, given its high profile auto industry, it is a large market for cars originating from the US. This is due to the massive demand for vehicles in the German market that its domestic industry cannot meet.
As such, passenger car sales in Germany, Europe’s largest market, increased to 313,600 vehicles in the first half of 2015, representing 1.62 million vehicles. When compared to last year’s figures, the German new car market is up 6% year-on-year in August to 226.314 registrations, bringing the year-to-date total to 2.135.459 units, also up 6% on 2014. (8)
According to the US-Saudi Arabia business commission, Saudi Arabia is currently the largest importer of vehicles in the Middle East, accounting for nearly 40 percent of all vehicle sales in the region. (9) New car sales are slated to rise by 6.7 percent annually, crossing the one million mark by 2020. While demand has historically fixated on high-end models, the Saudi market is experiencing a growing demand for smaller, lower-priced cars. (10)