Automakers in China face further margin pressure amid slowing economy
Annual growth rates will fall to 5 per cent over the next five years, says Fitch Ratings
The next five years will see a decline in the growth rate of China’s passenger vehicle marketas car ownership in big cities becomes saturated, said Fitch Rating.
The compound annual growth rate is expected to drop to 5 per cent – it was 7.3 per cent last year – amid the slowdown in China’s economic growth and restrictive policies on car purchases and usage in top-tier Chinese cities.
“The vehicle ownership in China’s first-tier cities is high, and we do not expect a continuing strong growth of the [passenger vehicle] market in these top cities,” said Jing Yang, associate director at Fitch Ratings. “Demand from lower-tier cities will be the major growth catalyst. The increasing income and low vehicle ownership rates in these cities will stimulate vehicle demands in these cities.”
Roy Zhang, associate director of Fitch Ratings, said he did not expect a big reduction in automotive prices even though market growth is slowing down because “automakers have no great pressure on reducing excess inventory this year”.
Zhang said sports utility vehicles (SUVs) will continue to gain market share from sedans, however he warned the competition in the SUV market is increasingly fierce with more participants involved. “SUV sales and profitability will vary [depending on the ] vehicle model in 2016,” said Yang. “Once a price war starts in the SUV market, margins may deteriorate quickly for manufactures that are highly reliant on their SUV business.”
