- Rate cuts are stimulative, yes, but it is not as straightforward as one could think, the same as there are lags to rate hikes, there are also lags to rate cuts in the economy (to a lesser extent).
- A few rate cuts will not cause a huge demand surge, as rates will still be relatively high compared to pre-COVID levels, though they will help support positive growth.
- If they have to do aggressive rate cuts, this usually indicates a recession, meaning sales may decline first before they eventually improve.
- The ideal scenario is one where significant rate cuts can occur because inflation is falling without a recession. However, I consider the probability of a soft landing to be very low (below 10%). That said, I’m not ruling it out entirely, but I am currently assuming a more conservative outlook.
- All forecasts will usually be wrong, so we can’t take them at face value never. Instead, we need to consider whether the sales conditions of 2023 will persist to produce similar results in the coming years, which, in my opinion, is more unlikely. Some of the things I am thinking are:
- Supply chain issues will mostly be resolved, and inventory levels for new cars is increasing coming already back to normal
- There is little pent-up demand remaining, and consumers no longer have substantial COVID-era savings. There is still catching up to do to prior peak sales levels, but I think will be a more gradual increase from now on.
- Interest rates, even with a few cuts, remain high compared to pre-COVID levels, central banks have been clear to stay high for longer, so the delayed effects of these high rates could start impacting the economy more strongly.
- Expectations of lower rates and prices could make consumers delay purchases until they feel they have normalized.
However, Even if the market outperforms the forecasts by 4% again, it will still be at most a 7-8% growth for 2024 and 2025.
And we have to keep in mind they could be wrong in both directions, not only up.
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To assess VW’s correlation with global sales, we would need the data series for both metrics to make a comparison. I’m not sure if this data is readily available, but I can look into it.
While VW might outperform the industry by a few percentage points, significantly exceeding the industry would require a substantial increase in market share, which I don’t believe reflects its current situation.
Additionally, you are projecting revenue, not just sales. If you anticipate that new models will significantly raise average prices due to new features?, this projection makes more sense to me. -
I have been given a 60% probability of a recession in the next 2 years for the US. However, I don’t have the same depth of knowledge about Europe or China to make a confident prediction or draft clear scenarios for those regions.
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Regarding prices, it’s important to distinguish between price levels and inflation. While car price inflation may improve or even decline for a while (as I expect), the overall price level will likely remain high due to the significant post-COVID increase, impacting affordability.
Given the improved supply-demand balance, current price pressures, increased competition, higher interest rates and elevated price levels affecting affordability, and a more soft global economy, I would prefer more conservative estimates for the next two years. However, my perspective is based solely on macroeconomic factors, and you are the one who understands the company better.
And as always we need to think in scenarios and probabilities because anything can happen under the right circumstances.