Industry braces for growth decline
The mainland's vehicle production may have revved up last month, but industry observers are still bracing for a stall in the second half as government subsidies wear off and economic uncertainties weigh on consumers.
Mainland manufacturers sent one million cars to dealers last month, an 18.7 per cent jump from August last year, according to data released by the official China Association of Automobile Manufacturers. That stemmed the tide of four consecutive monthly declines in sales growth. Shipments in July increased at the slowest pace in 16 months, gaining just 13.6 per cent.
The mainland just seized the crown as the world's largest vehicle market last year, putting an end to the United States' historic dominance of the industry. Manufacturers across the border kicked into high gear as government subsidies and a resurgent economy prompted consumers to buy cars. But growth has since been scaled back as last year's supporting factors have tailed off, forcing dealerships to work harder to get cars off the lot.
'The escalation in pricing pressure at the dealership level amid inventory pile-up could imply downside risk to margins in the second half,' Deutsche Bank analysts Vincent Ha and Alan Hellawell wrote in a report last month.
Earlier this year, the central government increased a purchase tax on small-engine cars from 5 per cent to 7.5 per cent. Consumer spending has also been constrained by lingering concerns over the country's sluggish stock market and overheated property sector.
Authorities did introduce a new subsidy over the summer, offering a 3,000-yuan (HK$3,435) rebate to consumers who buy energy-efficient vehicles. They also announced a larger subsidy for hybrids and electric cars. The effect of this might not have an immediate impact, however, since new-energy vehicles still made up a small portion of the overall market, Deutsche Bank said.
'We do not expect strong sales growth from these new-energy vehicles until there is a major technological breakthrough to lower costs or the development of related infrastructure is more extensive,' analysts Ha and Hellawell wrote.
The mainland's total wholesale vehicle shipments from manufacturers to dealers rose 16.1 per cent in August from a year earlier to 1.3 million units, according to the association.
While nowhere near the 70 per cent to 80 per cent growth seen in the first two months of the year, the August sales were 'reasonable', the association's vice-chairman, Dong Yang, said.
Dong said total car sales could hit 17 million units for the whole year, up from a previous estimate of 16 million that he gave in August.
Overall inventory levels were increasing at the dealership level, Dong said, but this was due only to a few passenger car brands that were seeing high inventory growth rates.
He said a wave of plant expansions across the industry would boost total production capacity to 30 million units a year by 2015. He also expected demand would rise at a similar pace, hitting around 25 million units a year by that time.
Credit Suisse analyst Toh Hung Bin said the sales figures for this month would be an important barometer since it was usually a busy period, given the holidays in Hong Kong and on the mainland.
'While most expect some rebound from September ahead of the October Golden Week holidays, a weaker-than-expected sales rebound could trigger significantly larger price cuts and/or downward revision of sales targets,' Toh wrote in a report last month. Toh also noted that vehicle stocks might have priced in positive industry news like a bottoming out of wholesale sales as well as a decline in steel prices.
Brilliance China Automotive Holdings is already up 82.2 per cent so far this year and Dongfeng Motor Group has jumped 19.5 per cent. Meanwhile, Geely Automobile Holdings shares have plummeted 30.4 per cent. BYD is down 28.9 per cent.
Growing capacity
A wave of plant expansions is taking place across the country
The expansions are expected to increase the annual number of automotive units produced by 2015 to: 30m
