Impact of Decline in Oil Prices on Automobile Sales

April 25, 2016

By: Muhammad Saim Raffat

The fall in the oil prices in the past year has led many to believe that the same has or will result in a huge boom for the automobile industry i.e. help in increasing the automobile sales significantly. Although to an extent this notion is not completely incorrect however the level of impact has not been that significant.

Overall, automobile sales rose by 3.7% during 2013-2014 from $68.65Mn to $71.17Mn and by 1.7% during 2014 and 2015 from $71.17Mn to $72.35Mn. Automobile sales have varied across the globe with some countries showing higher sales compared to others, while some countries actually saw a decline.

The economic conditions of a country directly affected the purchasing power of its citizens e.g. sales in Russia have declined by 36% in 2015 compared to 2014. The country’s economy has been hurt due to declining oil prices as it itself is an oil exporting nation due to which its currency has deteriorated in value this making purchase of imported cars more expensive. Similarly Brazil also saw a decline in its sales as low-income consumers are finding it harder to get an auto loan in Latin America’s biggest economy. With unemployment in Brazil at 7.9 percent, inflation above 10 percent and interest rates high, banks have been wary of lending to consumers who may have trouble making payments. In some cases, government’s intervention also played its role e.g. in Venezuela, the car sales plummeted by 6.6% between September 2014 and September 2015 due to extreme supply shortages because of government restrictions on both assembly plants and importers. Government intervention played its part in another country as well (this time in a positive way). China’s automobile sector was hit in mid 2015 due to slowing of Chinese economy however tax cuts in September for vehicles with 1.6 litre engines or smaller until the end of 2016 helped in boosting of sales to such an extent that it had a positive impact on a global basis.

U.S. saw a massive increase in its automobile sales primarily due to improvements in employment and income levels of the consumers while declining oil prices played a minor role in the increase of sales. Canada’s overall car sales too have increased except for Alberta where sales declined by around 11% in the first 10 months of 2015 as the same has been hit most by recession as its economy is oil dependent. Finally, Western Europe’s new-car sales rose 8.9 percent last year due to improvement in economic conditions in Europe especially Southern Europe.

Decline in oil prices was seen as a factor primarily in U.S., on the other hand the sales of Automobiles were primarily linked to the general economic conditions of that country which directly affected the parameters which are responsible for setting the tone for consumer spending e.g. employment conditions, income levels etc. or due to government policies (e.g. China and Venezuela). The only major way oil has played some part in the entire equation is for those economies which are more dependent upon oil exports e.g. Alberta (within Canada) and Russia to name a few. Otherwise it can be said that decline in oil prices did not have a major positive impact on the sales of automobiles in the globe.

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