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Customer LoginsSame-Day Analysis: IHS Automotive upgrades Chinese growth forecast
Despite a weak February, Chinese passenger vehicle sales have grown in the year to date, indicating positive momentum in the market.
IHS Automotive Perspective
- Significance: In light of year-to-date expansion of 5.6%, IHS Automotive has revised its growth forecast for the Chinese passenger vehicle market to 6.0% for 2016.
- Implications: IHS Automotive anticipates annual passenger vehicle sales in China of 20.9 million units in 2016.
- Outlook: Chinese brands continue to benefit from the growth in the market, with demand for Chinese-brand sport utility vehicles continuing to show positive momentum. As a result, IHS Automotive forecasts that Chinese brands' market share will rise in 2016.
February was a month of declining sales in the Chinese passenger vehicle market, but it was also the month of the Chinese New Year holiday, reducing the number of working days in an already shorter month. The overriding trend is that the sales data for the first two months of 2016 show growth in the market, and IHS Automotive believes that the momentum will build. The Chinese New Year of the Monkey fell on 8 February, helping to spur passenger vehicle sales in the preceding month but hurting demand in February, when total passenger vehicle sales fell 1.1% year on year (y/y) to 1.25 million units. This is according to IHS Automotive data, which define passenger vehicles as sedans, sport utility vehicles (SUVs), and multi-purpose vehicles (MPVs) only, and include imported vehicles. In the first two months, however, the overall passenger vehicle market grew by 5.6% y/y to 3.35 million units.
The passenger vehicle market in China thus continues to show a growth trend overall, with certain pockets of the sector witnessing strong double-digit percentage growth, while other segments are suffering declines. However, the sheer volume of the individual segments continues to attract automakers keen to take a larger slice of the market. The SUV segment continues to outpace the overall market, and indeed is propelling the market, lifting the overall growth rates. In the first two months, domestic sales of SUVs surged 40.3% y/y to around 1.35 million units, while in the same period sedan sales plunged 12.6% y/y to 1.79 million units. MPV sales hit 207,000 units in January-February, an increase of 27.7% y/y.
Outlook and implications
Elements of the passenger vehicle segment continued to see strong demand in the first two months of 2016, with solid momentum for Chinese brands, a number of which also reported growth in February alone. For Chinese brands, the year so far has been positive as their market share has been expanding at the cost of international brands present in China. Overall in the first two months, Chinese brands accounted for 36.1% of the passenger vehicle market according to IHS Automotive data, up from just 30.0% in the same period last year. The volume of sales from Chinese brands in the passenger vehicle segment hit 1.21 million vehicles in the January-February period, up 25.1% y/y. According to China Association of Automotive Manufacturers (CAAM) data on just locally produced vehicles, Chinese-brand sedan sales hit 362,000 units in the January-February period, comprising 20.4% of the total sedan segment. In the SUV segment, Chinese-brand sales accounted for 60% of all SUVs sold in the year-to-date (YTD) period, or 763,000 units. Within the MPV segment, Chinese-brand sales totalled 408,000 units, accounting for 93.7% of overall MPV sales in the two-month period. In 2016 we anticipate the continued growth of Chinese brands in the domestic market, giving them a larger share of the passenger vehicle market of around 32.4%.
However, exports of vehicles from China continued to decline in the YTD, decreasing to 80,000 units in the period, a 29.7% y/y decline. Of this total, passenger vehicle exports declined to 51,000 units, down 22.9% y/y, while commercial vehicle (CV) exports fell to 29,000 units, down 39.1% y/y. In January, 61,600 vehicles were imported into China, a decline of 38.8% y/y but still higher than the number of vehicles exported from China, which declined to 44,400 units in the first month of the year, down 40.3% y/y.
February was the month of the Chinese New Year, thereby reducing the number of working days in an already shorter month. The celebrations and festivities of the Chinese New Year generally amount to a week-long holiday and a subsequent quiet period. March's sales data will therefore be the main indicator of whether there has been a real slowdown in the market.
Meanwhile, stimulus from the government in the form of the existing 50% cut in the new car purchase tax for small-engined cars remains in place, while the government has begun showing signs that there may be more measures on the way. Early indications of such a move have come from the media and statements made by authoritative figures in government bodies, but so far no concrete new stimulus measures have been announced. Policies are also understood to be in the pipeline to boost demand among rural consumer groups, with certain provinces - such as Guangdong, Guizhou, Hebei, Henan, Jiangxi, and Qinghai - expected to bring in subsidies for light-truck purchases by the end of the year. Similar subsidies are then expected to be rolled out in other provinces. Cui Dongshu, secretary-general of the China Passenger Car Association (CPCA), told Bloomberg, "Helping rural residents buy light trucks is a very targeted and effective measure to boost production and consumption. Local government can go ahead with it using their own capital even if there's no matching fund from the central government."
The Chinese authorities have already been voicing concern over slower growth rates in the vehicle market. Xiao Zhengshan, secretary-general of the China Automobile Dealers' Association (CADA), was quoted as saying that the government policy that halved vehicle purchase tax to 5% for cars with engines of 1.6 litres and smaller was the main reason for the strong December 2015 sales performance, but warned that January and February were likely to witness slower sales growth. The association issued a warning to dealers to avoid stocking up inventories. Changes in government policies now mean that dealers have more authority over the models they choose to sell in their dealerships and are less reliant on pressure from OEMs. "This year, many automakers will start changing their policies. Now it will be up to auto dealers to tell automakers what models and how many they want," said Lang Xuehong, the association's vice-secretary-general. "In other words, auto dealers' performances will be based on their estimates of the market. It will be a new challenge for auto dealers."
Meanwhile, across China, ownership of cars has hit 172 million as of the end of January 2016, according to the Chinese Ministry of Public Security. This takes into account the 23.85 million new cars registered in China in 2015. Of the total vehicles owned, 136 million are "small sized cars", 91.5% of which are privately owned. The penetration rate, however, varies across China's cities, with the top-tier cities such as Beijing having a higher vehicle density. However, across China, for every 100 households there are 31 private cars. Cities such as Beijing and Shenzhen have a higher ownership ratio of around 60 cars per 100 households. According to the ministry's statement, 40 cities have a car ownership figure of more than 1 million, and in 11 cities, including Beijing, Shanghai, Shenzhen, and Tianjin, car ownership exceeds 2 million. Additionally, with about 33.75 million new drivers in 2015, China now has more than 280 million licensed car drivers, the statement said. This high disparity between vehicle ownership in the advanced top-tier cities and the rest of the country shows that there is still high sales growth potential. Therefore, despite the anticipated overall slower sales growth rates, the market remains enormously important for OEMs.
Forecast implications
With the government strengthening its commitment to boosting growth in the vehicle market and given the reduction in purchase tax for small-engined vehicles, consumers in China are looking to continue to make vehicle purchases despite the volatility of the stock market and continued drops in exports. The low oil price, low interest rates, and the tax cut are expected to drive another year of growth in the light-vehicle market in China in 2016, and we are therefore upgrading our forecasts to reflect the renewed momentum. Consequently, our forecast for light-vehicle sales in China during 2016 has been upgraded with an additional 246,000 units, thereby equating to an annual growth rate of 5.4% or total volumes of 25.76 million. We have also increased our passenger vehicle sales forecast for the year to 20.90 million units, reflecting annual growth of 6.0% y/y.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.