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Output milestone as 10 millionth vehicle rolls off the assembly line

PUBLISHED : Wednesday, 21 October, 2009, 12:00am
UPDATED : Wednesday, 21 October, 2009, 12:00am
 

China's 10 millionth vehicle this year has rolled off the production line, ranking the country just behind the United States and Japan in breaking the annual output milestone, although analysts expect growth to slow next year.

The mainland has already overtaken the US as the world's largest vehicle market, as America has suffered from its worst recession since the Depression in the 1930s.

While the US may reclaim its top position after its battered economy recovers, analysts say faster sales growth on the mainland means it is just a matter of time before China becomes the long-term leading market.

Xinhua reported that the landmark vehicle was made by First Auto Works, the mainland's largest carmaker. Yesterday, FAW launched a new model of its Jiefang truck, with the first unit bearing the serial number 10,000,000.

Mainland vehicle sales jumped 34.2 per cent year on year in the first nine months of this year to 9.61 million units, data from the China Association of Automobile Manufacturers showed.

In September, sales in the biggest segment - passenger cars - soared 83.6 per cent, crossing the one-million-a-month mark for the first time.

The association forecast full-year sales would reach 12.6 million units this year, up 43.2 per cent from last year, largely because of Beijing's incentives for car buyers.

In contrast, sales in the US are expected to be just below 10 million units this year, according to Yale Zhang, a director of US-based car industry consultancy CSM Worldwide. This compares with 13.2 million units sold last year and 16.1 million in 2007.

Beijing has halved the consumption tax on cars with 1.6-litre engines or smaller to 5 per cent for this year. It is also giving a subsidy of up to 5,000 yuan (HK$5,676) for each small car sold for 30,000 yuan to 40,000 yuan.

Zhang expects the incentives to continue next year. But he projects sales growth will slow to just 10 per cent next year after surging 35 per cent this year, as the number of buyers who can afford a vehicle but have yet to take advantage of the incentives falls.

'This year's growth is primarily driven by policy support,' he said. 'Without the incentives, sales would be very weak in next year's first half.'

In a research note, Citigroup analyst Gerwin Ho projected 15 per cent sales growth for next year, driven by stronger economic growth of 9.8 per cent, in the expectation that the incentives would continue.

BNP Paribas analyst Jack Yeung is more optimistic, predicting that next year's growth would be in the high 20 per cent range.

He said the mainland's growth potential was huge, given that its vehicle penetration rate was only 3 per cent of the population and was expected to increase to 5 per cent within five years. This compares with more than 40 per cent in Japan and the US.

Zhang and Yeung expected vehicle prices to remain stable or fall only slightly this year, with larger cars to have more room for price cuts. Manufacturers slashed small-car prices aggressively in the past to drive sales.

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