TodayApril 16, 2022

Will cash constraints and smog hurt Chinese auto sales?

Chinese Economy

John Batchelor radio show talked to Gordon Chang,, and Lou Ann Hammond, CEO, about China, the Chinese economy, auto sales in China and Japanese car sales in China.

The China Association of Automobile Manufacturers (CAAM) reported that China’s light-vehicle sales totaled 1.4 million units in June, up 9.3 percent from the same month last year.

LMC Auto is forecasting that the party might be coming to a close, “The Seasonally Adjusted Annual Rate (SAAR) of Light Vehicle in May dropped to the lowest level so far this year. It reached only 20.75 million units, down 5.8 percent from the previous month. The Passenger Vehicle SAAR declined to 16.01 million units, while the Light Commercial Vehicle SAAR dropped to 4.74 million units.”

While LMCA is showing record sales in June they are listing reasons for their concern, “We believe that the risks for the slowdown in sales growth will continue to accumulate.

Firstly, according to the CADA (China Automobile Dealers Association), the Vehicle Inventory Alert Index remained higher than the Alert level in May. As June and July are traditional low seasons in vehicle sales, the Vehicle Inventory Alert index will continue to rise, and the whole sales growth rate will decline.

Secondly, the total export vehicle value growth was much lower than the export volume growth, reflecting a significant decline in profit. Moreover, in May, even the vehicle export volume saw a year on year decline for the first time since 2008. Chinese carmakers share in Russian and Brazilian markets also slumped.

Thirdly, the global upturn is less robust than we had expected. GDP growth in China slowed down. The HSBC manufacturing PMI for May dropped to a seven-month low, suggesting that the weakness has persisted into the second and third quarters. Oxford Economics reduced its forecast on GDP growth for China in 2013 from 7.9 to 7.5 percent.

Finally, because of serious air pollution in some regions, the car number limit policy will be likely to be implemented in some tier-2 or tier-3 cities in the future. It could potentially harm car sales.

To conclude, though we have a lot of negative factors, we have retained our short term sales forecast for 2013 Passenger Vehicles at 16.07 million units, up 12.8 percent. The Light Commercial Vehicle market sales forecast has remained at 5.3 million units or 6.2 percent. We have also kept our long term forecast for Light Vehicles.”

China’s two leading automakers, General Motors, and Volkswagen AG, both outperformed the market in June.
General Motors sales in China in the initial six months of 2013 outperformed analysts’ forecast of 10 percent growth by growing 10.6 percent from last year the previous record for the period to 1,567,392 units. China’s light-vehicle sales rose 14 percent to 8.7 million vehicles.

Volkswagen’s carmaking ventures in China delivered 1,398,902 units in June, pushing sales in the first half of the year to 8,657,153. Compared to the same period a year ago, the passenger car market expanded 9.7% in June and 14% in H1 2013. Within China, deliveries rose 12.3% to 1,289,665 in June and 16.7% to 8,178,417 in the first six months. Both the SUV and MPV sectors posted large gains in the first half-year, expanding over 30%, while demand for microvans dropped 6.7%.

“We have seen strong vehicle demand across China, particularly in the midsize, upper-medium, luxury and SUV segments,” said Bob Socia, President, GM China, and Chief Country Operations Officer, China, India, and ASEAN. “We expect demand for our lineup of passenger cars and commercial vehicles to remain robust through the end of the year.” Shanghai GM and SAIC-GM-Wuling, as well as five of GM’s brands offered in China, had record domestic sales in the first six months of 2013.

Is China is considering limiting sales in all the big cities because of the concern of the Chinese people of pollution on their health? Bloomberg reported that Shi Jianhua, deputy secretary-general of the China Association of Automobile Manufacturers, said in a briefing in Beijing yesterday that Eight cities — Chengdu, Chongqing, Hangzhou, Qingdao, Shenzhen, Shijiazhuang, Tianjin, and Wuhan — were on the list to have their car sales limited.

Dayna Hart, Communications Director for GM China, stated the position of General Motors in an email, “The license plate registration process has been in place for some time and is already factored into the market. We understand that congestion is an issue and that the government needs to take action to decrease that congestion in China’s major cities, but do not think the plate restrictions and higher cost will have a significant effect on sales in the long term. The current restrictions in Beijing, Shanghai, Guangzhou, and Guizhou have had a limited impact on GM sales. If all 25 cities with the severe traffic situation in China were all to implement restrictions in 2015, we estimate that the impact on GM car sales would only be about 2-3%.”

Dr. Carsten Krebs, Volkswagen’s Director, Corporate Communications seconded GM China’s sentiment, “Even if further large cities do introduce car license controls, we don’t expect it to affect the growth potential over many years to come. In the future, second and third-tier cities will make the largest contribution to growth in the Chinese auto market.”

2-3% is also what Jianhua told Bloomberg to expect in reduction if these restrictions are put into place, a loss, they said, of about 400,000 vehicles. The question would be what type of cars would not be sold? Are they the luxury cars with a big displacement engine, because of the smog regulations, or the smaller cars that people that need financing purchase?

Similar to April, growth in May was mainly underpinned by the normalized sales of Compact and Mid-size cars, and also by the booming sales of several newly launched SUVs. The SUV segment sales surged by 30 percent year on year, to 0.21 million units, which accounted for 17 percent of all Passenger Vehicle sales. The subcompact car segment continued to hold off the whole market performance. Its sales slumped over 10 percent year on year due to the lack of new models and lost ground from the price-cutting of compact cars.

Driving the Nation

June 2013 China car sales

Driving the Nation

SUV and Minivan sales in China for June, 2013

Lou Ann Hammond

Lou Ann Hammond is the CEO of Carlist and Driving the Nation. She is the co-host of Real Wheels Washington Post carchat every Friday morning and is the Automotive, energy correspondent for The John Batchelor Show and a Contributor to Automotive Electronics magazine headquartered in Korea. Hammond is a founding member of the Women's World Car of the Year #WWCOTY, and board member of the Women in Automotive.