Auto dealers in China are signalling the destocking that led the market to slide in previous months of 2015 is now over and demand for vehicles is on the rise again, with sales up in September, IHS Automotive's registration data show.
IHS Automotive perspective | |
Significance | Total auto market sales in China were up by 2.1% year on year (y/y) in September and were up by 21.6% from August. |
Implications | IHS Automotive will adjust October's forecasts with an additional 150,000 units expected to be sold this year in China, and an additional 600,000 units expected to be sold in 2016 in the light-vehicle segment, as positive stimulus measures prompt more rapid sales growth. |
Outlook | The Chinese vehicle market continues to be strongly correlated with the country's GDP and housing trends. Cars continue to be the second strongest big-ticket product demanded by Chinese consumers following the purchase of property. |
The vehicle market in China appears to have witnessed a one-off dealership destocking which culminated in July. The market has now begun to see positive trends developing as month-on-month (m/m) sales jump considerably, as the dealerships begin to confidently raise inventory levels, while the Chinese government has also stepped in to prevent the market cooling further by implementing a tax cut for 1.6-litre and smaller cars in China.
In September, total vehicle sales were 2,024,800 units in China, data from the China Association of Automobile Manufacturers (CAAM) show, which are based on wholesale data of units moved from production bases to dealerships in China. This level of sales represents an increase of 21.6% m/m and 2.1% year on year (y/y), the data release shows.
In the nine months of January-September, the total vehicle market in China witnessed sales of 17,056,500 units, marking an increase of 0.3% y/y.
However, production levels are still lower than last year - indicating that there is already adequate stock at production bases. On a year-to-date (YTD) basis in September, total vehicle production in China was 17,091,600 units, down marginally by 0.8% y/y.
The main positive element coming out of the CAAM summary data is that sales of passenger cars in China have grown faster than in the same period last year. This is the evidence that the market was looking for in terms of categorically stating that July marked a month of major dealers' destocking across China. Passenger vehicle (PV) sales in September in China were 1,751,200 units, marking an increase of 23.4% m/m and an increase of 3.3% y/y.
In terms of production, the market has yet to recover to previous levels. In September, a total of 1,620,700 units were produced, marking an increase of 20.8% m/m but a decline of 6% y/y. It should be noted that the CAAM definition of PVs includes sedans, sport utility vehicles (SUVs), multi-purpose vehicles (MPVs), and minibuses. In addition, the data relate to wholesale market data and not to retail sales.
On a YTD basis, a total of 14,547,800 PVs were sold in China, marking an increase of 2.8% y/y, while production levels also increased on a YTD basis to 14,606,300 units, up 1.5% y/y. However, there was a marked deceleration in the growth rates in the PV market, with sales decelerating by 7.4 percentage points and production down by 9.8 percentage points.
The demand for SUVs continues to prop up the overall market growth rates, with sales up 46.7% y/y in the YTD period, at the expense of the mainstay sedan market, which fell by 8.8% y/y.
Commercial vehicle (CV) sales were down in September, with 273,600 units sold, a fall of 4.9% y/y, and production was 273,600 units, down 3.2% y/y, although both CV sales and production were up on a m/m basis by 11.2% and 20%, respectively.
On a YTD basis, total CV sales were 2,508,700 units, marking a decrease of 11.8% y/y, while production was 2,485,300 units, down 12.5% y/y.
However, exports from China continue to stumble. A total of 55,600 vehicles were exported in September, marking a decline of 28.9% y/y. Although exports were up on a m/m basis by 6.5%, the overall situation does not bode well for Chinese vehicle exports. Of the total, PVs accounted for 36,500 units, up 10.6% m/m but down 24.7% y/y. CV exports were 19,100 units, down 0.6% m/m and 35.7% y/y.
By comparison, in August, a total of 78,600 vehicles were imported into China, down 37.1% y/y. In the same month, a total of 58,800 units were exported, down 17.4% y/y. On a YTD basis in January-August, a total of 711,400 vehicles were imported into China, down 25.5% y/y, while in the same eight-month period, exports were 528,500 units, down 12.1% y/y. Therefore, overall, despite exports from China dropping, the rate of the fall in imports is higher, indicating a faster decline in the level of imported vehicles demanded by consumers in China. However, the volume of imports currently is higher than the volume of exports from China.
New energy vehicles (NEVs) as defined by the Chinese government include only three types of vehicles: pure battery electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs). In September, NEV sales were 28,092 units, up by over 2.2 times from the level of sales in the same month last year, while production levels were also up, by 2.1 times to 28,324 units. Pure EVs accounted for sales of 19,228 units in September, 2.9 times more than in the same period last year, while production levels hit 20,365 units, up 2.7 times. PHEV sales were 8,864 units in the month, up 1.3 times, and production of PHEVs was 7,959 units, up 1.1 times from the amount produced in the same month last year.
On a YTD basis, a total of 136.733 NEVs were sold in China in September, while production was 144,284 units in the nine-month period, marking over two-fold increase compared with the same period last year. Pure EVs accounted for sales of 87,531 units, while 93,032 EVs were produced. Meanwhile, PHEVs sales were 49,202 units, with production levels up at 51,252 units.
Chinese brands continue to grow their market share of vehicle sales in China, with sales of 698,600 PVs by Chinese brands in the month, accounting for 39.9% of the local PV market, an increase of 6.9%.
Outlook and implications
The big question that seems to be in need of clarification is what exactly happened in the market in July that prompted the decline and why the market is now picking up again. The dealers' destocking was the culmination of a number of factors that, over the past year, had forced dealers in China to hold inventories that were higher than needed.
In 2014, there was an increase in the number of cities putting restrictions on new vehicle sales, which prompted 'panic buying' among consumers. The 'panic' situation was due to consumers worrying that the prices of licence plates would skyrocket following the limitation of the number of licences to be issued each year. In 2014, a number of cities in China, such as Beijing, Shanghai, and Guangzhou, already had such limits in place, forcing up the prices of licence plates in these cities. The panic buying occurred in a number of cities in 2014, such as Nanjing, Chongqing, Xian, and Xining. Dealers had to increase stocks rapidly and add inventory to be able to supply the sudden demand.
|
Meanwhile, automakers were also pushing for high sales targets at dealers in 2014. This culminated in dealers voicing anger and frustration at targets that they believed were unachievable in a cooling market. Simultaneously, OEMs were expanding their number of dealerships across China. Every automaker has high dealership expansion targets to capture every part of the country. What this in turn implies is that the volume of vehicles demanded by dealers on the whole rises, as there are now more dealerships. However, the radius of the sales area of each dealership is simultaneously declining.
All these factors have pushed the dealers to destock and try to correct the volumes at their dealerships.
IHS Automotive, via our acquisition of POLK, now also has registration sales data. These data have held up throughout the summer months, indicating that registration of new vehicles has continued as normal and that the wholesale data are where the drop mainly occurred.
However, China's gross domestic product (GDP) continues to be of concern and current forecasts estimate that GDP growth will hit around 6.5% this year, down from 7.3% last year and well below the previous 30-year average of 10%. If GDP growth falls to below 6%, the car market will indeed be affected. The demand for personal mobility, for passenger cars, continues to be the second strongest product after housing that Chinese consumers want. Therefore, with adequate disposable income, PV sales are expected to continue to rise.
The new government stimulus package cutting the level of purchase tax from 10% to 5% for new vehicles with engines of 1.6 litres or smaller will push up demand. The policy is only valid until end-2016; therefore, IHS Automotive will in the upcoming October forecast adjust our market decline accordingly. Following the decrease of our September forecast of light-vehicle sales in China to 23.4 million units this year, we will now add around 150,000 units to this year's forecast and a further 600,000 units to our forecast for 2016.