Two months of shining auto sales in China

08:13, November 23, 2010      

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"Golden September - silver October" is often how the two months are known because of their high automotive sales.

In the past month, a total of 1.5 million light vehicles were delivered in China, equivalent to September and 27 percent higher than the year previous.

Passenger vehicle sales grew by 31 percent for the month to 1.1 million units, while light commercial vehicle sales increased by 20 percent to 435,000 units.

The seasonally adjusted annual rate (SAAR) shot up to a record 19.2 million units in October, breaching the 19 million unit mark for the first time in the market's history.

The October SAAR was over 9 percent higher than the 17.6 million unit figure in September, and compares to 18.5 million vehicles in January.

The market has clearly reversed from a weakening trend in the first half of this year, making a sharp rebound from this year's SAAR trough of 15.5 million units in April.

Wholesale sales in October usually slow after a large inventory surge in September. In fact the data indicates that in September dealers' inventory of passenger vehicles increased by 80,000 units, equivalent to two days. Throughout the whole of the third quarter, inventory rose by 5 days.

The key factor causing manufacturers to push vehicles on dealers in October was expectations of last-minute purchases toward the end of the year.

Similarities between the period last year - strong economic trends, soaring vehicle demand and the expiring subsidies - make carmakers believe that what happened in previous years will be repeated.

On the retail side, increased incentives helped boost sales, particularly of small cars.

Though the effect of the 3,000 yuan subsidy for fuel-efficient cars is weaker than a tax cut on purchases, the market share of eligible models slowly climbed in recent months. This trend is expected to continue into 2011 with the extension of the subsidy.

Despite the overall market being hot, the individual situations vary. Shanghai GM and Shanghai VW once again became the only two candidates competing for "sales champion of the year" in the passenger vehicle sector.

SAIC-GM-Wuling has already sold more than 1 million vehicles through the first 10 months. Dongfeng Nissan and FAW-VW are close to achieving their annual target.

In contrast, many carmakers will be lucky to meet their ambitious targets set at the beginning of the year, or even the targets adjusted mid-year. But that may not be a bad thing.

Setting realistic goals, reducing pressure on the dealers and eliminating the inventory should help make life easier for these companies in 2011. It is already reflected in the market with Nissan, Toyota, and Honda slowing their output and luxury car makers such as Mercedes-Benz, BMW and Audi reducing incentives.

China is certain to remain the largest automotive market in the world for a second consecutive year. Total new vehicle sales including medium and heavy commercial vehicles will exceed 18 million units this year, which tops the highest level in the United States' history. Given China's economic position, the demand for automobiles will continue to grow in the coming years.

But we do not believe the 30 percent growth rate of 2010 can be maintained.

China's reliance on imported fuel increased by 55 percent in the first half of 2010 and the fuel prices continue to climb.

The 85 million existing vehicles on the road today, plus over 18 million units produced every year, are putting severe pressure on the environment as well.

It is clear that the government will tamp down growth in vehicle sales. The imminent revision of vehicle and vessel taxes will be the first measure to increase the cost of ownership, and we expect more policies to be implemented.

Having seen the stimulating effect of incentive policies on vehicle sales in the last two years, there is no reason for us to underestimate the determination of Beijing to shape the industry.

Source: China Daily


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