Consultant expects sales of domestic autos to grow by 8 percent in 2016 

 

In line with forecasts, both production and sales of passenger cars in September saw considerable growth in the preceding month. 

 

However, when compared to the same period last year, production levels were lower, with year-on-year output down for the fourth consecutive month, while, in contrast, sales picked up to some extent. Crucially, passenger car inventory levels fell yet further. 

 

In the month of September, production and sales of passenger cars, excluding imports, reached 1.56 million and 1.69 million units, respectively, up by 21 percent and 24 percent on the previous month, while production fell by 4.6 percent and sales rose by 6 percent in year-on-year terms, with strong demand for SUVs driving the growth in sales. 

 

The September passenger vehicle's seasonally adjusted annual rate (including imports) is estimated to be 20.34 million units, up moderately (4.1 percent) from 19.53 million units in August - and slightly higher than we expected. 

 

Vehicle registrations reflect the ongoing strength in the retail passenger car market as the number of new registrations during August climbed 16 percent from last year. 

 

As automakers cut production rates, while retail sales rose steadily, the gap between wholesale deals (including exports) and registrations during the first eight months of the year narrowed to 180,000 units, equivalent to 1.5 percent of total passenger car registrations. 

 

Given that exports of domestic passenger cars exceeded 190,000 units in the first eight months of 2015, wholesale levels (excluding exports) fell below those of registrations by about 10,000 vehicles. 

 

In short, the impact of Chinese automakers' efforts to lower stock levels are becoming increasingly evident in the market. In percentage terms, for the first eight months of the year, registrations increased by more than 10.6 percent, while wholesale deals saw growth of just 4.8 percent. 

 

As the destocking process progresses smoothly, the market will be on an increasingly steadier footing, with the foundations laid for growth in the final quarter of 2015 and into 2016. 

 

From a city-tier perspective, total sales in first-tier cities fell by more than 19 percent in the January to August period, while second- tier cities saw a rise in sales of 4 percent. 

 

The overall decline in the market can be explained by the drop in sales of passenger cars in both first- and second- tier cities. 

 

Conversely, demand remained strong in cities ranked from three to six, with the rate of growth ranging from 10 percent to 19 percent. 

 

As the impact of both the car restriction policy and the stock market correction lessens gradually, we expect to see a moderate recovery in sales in the first- and second- tier- tier cities during the coming year. 

 

Although underlying demand remains relatively stable, the ongoing negative growth in passenger car production output remains a concern for the Chinese government, which, at the end of September, led the authorities to slash purchase tax by 50 percent for passenger cars with engines of 1.6 liters or less; the cut took effect from Oct 1 and will remain in place through to the end of 2016. 

 

Currently, more than 67 percent of the passenger car sales fall into the category that qualifies for the tax cut. 

 

The positive impact on light commercial vehicles, however, will be very limited, as mini buses will be the only segment that can benefit from the tax cut. 

 

The prices of mini buses are low to start with, so the tax cut will also be small. Moreover, the mini bus segment has been losing its market share to multipurpose vehicles in recent years. 

 

To put this into context, in 2009, in response to the global financial crisis and growing domestic demand, the Chinese government cut purchase tax rates by half to just 5 percent on passenger cars equipped with engines of 1.6 liters or less. This year, China surpassed the United States to become the world's largest automotive market. 

 

These renewed stimulus policies are expected to help further boost the passenger car market during the fourth quarter of 2015, with the effects extending into all of next year. 

 

However, as was the case four years ago, we expect to see a degree of payback in 2017 once the policies come to an end. 

 

In light of the above factors, our current forecast is for sales of locally made passenger cars to reach 19.36 million units this year, marking a rise of about 5 percent, while our 2016 full-year projection has been revised upward to reflect growth of 8 percent in locally made passenger car sales, driven by the incentive stimulus package, with growth set to slow down to 4.7 percent in 2017.