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[Dr. LZ Series] How will automobile industry cope with 2017 recession?
#1
First of all this is an assumption that we have a recession in the year 2017. A lot of countries have data seemingly to have reached the breaking point. In economics, a boiling point is good because it breaks through the roof, a breaking point is bad because it is like a fishing net about to break. However we are not going to discuss about the chance of recession, instead we are going to focus on what will happen to different industry if the recession happen on 2017.

Next, let us identify what sectors are linked with automobile industry. Banks and financial companies have the closest relationship with automobile industry. Automobile are so expensive in Singapore one often have to take loan for a vehicle. No doubt the interest from vehicle loan is low, it is a very stable source of income for the lender. It is backed by asset and the insurance in case anything goes wrong, a very secured loan. Another part to it is the insurance companies. Every vehicle need to be adequately insured before they can hit the road.

A small portion of the vehicle owner will extend their COE which will benefit the tax department. A vehicle used for 10 years that send for scrapping will recover 50%-55% of its paper value. If the owner decides to extend for another 5 or 10 years, the paper value will be forfeited and he will have to pay a new COE for the next 5 or 10 years. Further to that their road tax and maintenance will also increase by the year. This come to the workshop where their business will not drop as much as the new car dealers.

We now to answer the real question - 2017 and its impact. Different years will give a different result to different industry. Indeed almost every industry will suffer in recession, but the impact level will be subjective. 2 facts we know so far - a lot of cars are due for scrapping in 2017/ 2018, and a sizeable portion of Singaporean have high savings in their bank because they hold their money for the property cooling measure to be over. People who have the money or retired and need a vehicle will not be bothered about the recession as their buying power have not change. These are the main clients for new car dealers in 2017 in case of a recession.

However, business will still be hugely affected because the average working class may choose to take public transport. Private transport provider like Uber or Grab can adjust their price according to the market and will turn out to be the more popular choice over conventional Taxis. Not to discuss so much about public transport, but a effective public transport system render having a car mandatorily becomes null. New car dealers will give all kind of gimmicks to encourage sales that includes extended warranty and hence it will affect the workshop business. People who already need a car like those mentioned above will also get benefitted from these little perks.

Japan manufactured car usually have no price control and they are willing to lower the price according to the market situation. Europe manufactured car will face a different outcome because some of the bigger brands enforce price control. They will likely give so much freebies to match the discounted rate but the freebies may not be what the buyer nor could he afford the original price.

The conclusion is automobile and its related trade will not be highly affected if the recession falls on 2017/2018.

Thank you for reading, please look out for my next recession discussion on the fashion industry.
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#2
Thank you Dr. Liu Zhen. Looking forward to the next post =) Looks like I may need to change my trade again XD
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#3
Very helpful and insightful. Thank you for sharing!
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#4
Thank you Dr.
And i'm eagerly Looking forward to your next post......
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#5
Good to know it....
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