Like the revived confidence in Hong Kong's retail stocks, the region's recovery is soon set to be the driver of enthusiasm for motor vehicle groups. But, analysts say, there is a long way to go before the sector will be back on track. According to Core Pacific-Yamaichi economist Andy Wong, motor-vehicle sales figures for May in Hong Kong underperformed the improving retail sales market. Mr Wong said despite talk of a re-emerging sector this year, his optimism for motor-vehicle sales in Hong Kong in the near term is still low. 'Usually, with a recovery, we expect people to spend on basics and the last item to pick up is luxury goods so I would expect motor sales to push up next year (in Hong Kong),' Mr Wong said. Unofficial vehicle, or units sales, for Hong Kong in June were about 2,600 and 3,000 last month. According to one source, that is 'a good improvement'. Year-on-year vehicle sales fell 20 per cent in May, which was still a marked improvement on the 34 per cent decline in January and 48 per cent in February. Earlier this month, Inchcape Motors, Hong Kong's largest motor-vehicle retailer and owner of Crown Motors, indicated that the slump in the SAR's vehicle market seemed to be finally coming to an end. 'We believe the market has now bottomed,' the company said, adding that full signs of recovery would start coming through in the second half of the year. The group competes against companies such as Jardine International Motor Holdings, a company whose shares soared in early July on a recovery story. In early July, the Hang Seng Index was trading at around 14,372.61 and turnover was about $12 billion. Jardine Motors stock jumped 40 per cent in three days in early July on what brokers said were hopes the wealth effect of the market rally will show through in luxury car sales. Its shares rose from $4 on June 30 to $5.60 on July 6. Jardine Motors is the sole distributor of Mercedes-Benz cars in Hong Kong. SG Securities has placed a buy recommendation on the stock, saying '. . . we believe it's just a matter of time before the recovery in Hong Kong's economy will be reflected in the company's earnings'. 'Management believes that first-half results will be weak, as most deliveries will take place in the second half (1999). Management expects flat unit sales this year,' said analyst Anne Ling. William Tsui, managing director of Crown Motors - the Toyota, Lexus and Hino franchise for Inchcape Motors in Hong Kong - said the company was pessimistic at the start of the year, but had now changed its view. Inchcape, a London-based group, is the parent company. Inchcape Motors is listed in Singapore. 'Let's just say that we hope the worst is over and everything seems to be stabilised. We were a little bit pessimistic at the beginning of the year, but we've seen a gentle upturn,' Mr Tsui said of Hong Kong. Fellow vehicle distributor Sime Darby Hong Kong - a subsidiary of conglomerate Sime Darby Malaysia - recently told analysts it also believed the worst was behind them in Hong Kong. Sime Darby's key business is the distribution of BMW and Mitsubishi vehicles. It has some distribution in the mainland, but it is not exclusive, ABN Amro retail analyst Jeremy Sutch said. The brokerage has the company listed as a buy. 'Poor full-year 1999 performance has been factored in by the market,' Mr Sutch said in a recent report on the company. 'Forward earnings should stage a strong recovery through a combination of stabilisation in Hong Kong units sales, impressive cost reduction and dramatically improved PRC contributions,' he said. There is also the likelihood of industry consolidation and the firm is in talks with several distributors 'on the verge of bankruptcy'. Another source said: 'During the down time, there's always talk of consolidation. The smaller distributors, the smaller brands, will find it difficult and the big boys will probably buy them now. Between now and the end of the year, I hear some talk of consolidation.' However, Daiwa Securities vice-president of Asian equity Michael Liang said while the sector is not continuing its downturn, the stock prices of the companies here have failed to respond. 'In terms of stock prices, it hasn't done very much,' Mr Liang said. Jardine Motors stock last closed down 0.58 per cent to $4.225, with Inchcape's down 0.1 Singapore cent to S$2.39 on the Singapore stock exchange. Sime Darby's were off 6.25 per cent to $3.