Booming Global Auto Market Good For Many

By: Frank Holmes | Sun, Feb 27, 2011
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by Frank Holmes and John Derrick

Buick Excelle in China

Perhaps no industry has experienced a stronger recovery from the depths of the recession than the global automobile industry. Around the world, cars are rolling off the lot at a pace not seen in years. Global car ownership is expected to rise 17 percent over the next five years, according to data from J.D. Power.

In the U.S., an improving job market is giving consumers confidence to purchase big-ticket items such as automobiles. A recent survey from the Conference Board shows a record number of people (13 percent) are looking to purchase a vehicle in the next six months. That's triple the amount of a year ago and the highest in more than a decade.

Number of people planning to buy a car in the US

In China, the auto sector is really heating up. January total vehicles sales were up 13.8 percent on a year-over-year basis to 1.89 million vehicles, the highest monthly total on record, according to ISI Group. The firm is forecasting total sales of 20.5 million units this year, up nearly 900 percent since 2000. By 2015, ISI estimates annual sales will total 30 million units.

China Total Vehicle Sales

Two things really stand out from the rise: 1) vehicle sales rose despite a rollback in government subsidies, and 2) passenger vehicles drove sales. ISI says that "persistent double-digit per capita real income growth is creating a 'car culture' in China."

While thriving, the car culture is China is still in its infancy. Currently, there are roughly 3.5 vehicles owned for every 100 Chinese citizens. However, that figure is very low compared to other countries with similar levels of GDP per capita.

Catch up potential in vehicle penetration for several emerging market countries

You can see from this chart from Main First Bank that China and Thailand have relatively similar levels of GDP per capita, but the rate of vehicle ownership in China is significantly lower. If China were to catch up with the trend of other countries, the ratio would roughly be 10 vehicles for every 100 people. The same can be said for other countries where incomes are rising such as Turkey and India.

When you spot such a powerful trend, it's important to look for the inter-market relationships. The demand for new automobiles is generating increased demand for auto supplies such as batteries, tires, sensors, aluminum and electronics. It is also driving demand for oil through gasoline and diesel consumption.

The infrastructure needed to handle all these vehicles is also in great demand. Roads and bridges need to be built and congested streets and highways need to be expanded and widened, driving demand for cement and steel.

The stage is set for a booming global auto market over the next several years. This could be a driver for the entire supply chain from basic commodities to high-end components.

 


Frank Holmes is CEO and chief investment officer for U.S. Global Investors. John Derrick serves as director of research for U.S. Global Investors. The world of global investing now comes in a travel size. Download the free U.S. Global Investors iPhone application and stay up to date on investment news in gold, natural resources and emerging markets while you're on the go. Click here to download or visit the App Store.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

 


 

Frank Holmes

Author: Frank Holmes

Frank E. Holmes
Chief Executive Officer
Chief Investment Officer
U.S. Global Investors

Frank Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company's funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper's top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper's top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of "The Goldwatcher: Demystifying Gold Investing."

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron's, The Financial Times and other publications.


Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

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