Chinese Passenger Car Sales Rise 55.3% Y/Y in February; Industry Association Expects 10-20% Y/Y Growth this Year

The Chinese vehicle market once again recorded promising growth during February thanks to the government's continued market support measures. According to data released by the China Association of Automobile Manufacturers (CAAM) and reported by Reuters, passenger car sales in the country rose by 55.3% year-on-year (y/y) during the month to 942,900 units, while sales of commercial vehicles (CVs) stood at 268,600 units. This led to growth of 46.3% y/y in the overall Chinese vehicle market during February, with over 1.21 million vehicles sold. According to the CAAM, the key reason behind the relatively slower (in percentage terms) increase in vehicle volumes during February was the week-long Lunar New Year holiday celebrations starting from 14 February, which led to increased purchases of consumer durables almost across the board by Chinese customers during the previous month. As a result, year-to-date (YTD) sales in the first two months of 2010 now stand at just under 2.88 million units, an increase of 83.8% y/y. Of this total, passenger cars accounted for 2.26 million units (up 85.5% y/y), while CV sales stand at 616,800 units.

By brand, the top-selling vehicle manufacturer during February once again remained the General Motors' (GM) three-way mini-CV joint venture (JV) with local automaker Shanghai Automotive Industry Corporation (SAIC) and Liuzhou Wuling Automobile, SAIC-GM-Wuling. The JV sold 110,315 vehicles during the month, up 37.7% y/y. It was followed by the passenger car JV between SAIC and German automaker Volkswagen (VW), Shanghai VW, with 60,766 units (up 38% y/y). The other passenger car JV of SAIC and GM, Shanghai GM, stood in third position, having sold 58,182 vehicles (up 65.7% y/y). The fourth and fifth positions were held by Japanese automakers Toyota and Honda, as they sold 45,500 (up 30.0% y/y) and 44,207 vehicles (up 40.0% y/y), respectively.

Xiong Chuanlin, deputy secretary-general of CAAM, was quoted by Asia Pulse stating that light vehicle sales in China are currently expected to reach between 15 million and 16.5 million units during 2010, on the back of the continued government incentives and growing vehicle demand from lesser-penetrated regions within the country. He added that the Chinese vehicle market will continue to grow between 10% and 15% y/y for the next few years, unless the government announces any additional incentives measures for the industry in coming months. However, Chuanlin raised concerns that this growth momentum will lead the local market to around 30 million units per annum by 2015, which will escalate environmental and requisite fuel-availability issues; and thus the Chinese government must immediately begin promoting electric vehicles and those with alternative powertrains.

Meanwhile, Xinhua's China Economic Information Service reported that overall vehicle sales for SAIC rose 67.2% y/y during the first two months of this year to 555,757 units. According to the statement filed with the Shanghai Stock Exchange (SSE), the SAIC Group sold 248,435 vehicles during February itself, an increase of 45.6% y/y. Company chairman Chen Hong reaffirmed in the statement that SAIC (along with its Chinese JVs with GM and VW, and own brands Roewe and MG) aims to sell at least 3 million vehicles during 2010, helped by its upcoming new own-brand models (see China: 8 March 2010: SAIC Forecasts 10% Sales Increase in 2010, Aims to Launch Four Own-Brand Models this Year).

Outlook and Implications

Whereas most developed vehicle markets, such as Europe and the United States, continue to struggle with the after-effects of the global economic downturn that began in the latter half of 2008, the Chinese market has showed strong signs of recovery and resilience since early 2009. It was mainly driven by the extensive auto industry stimulus packages implemented by the government during the first half of the year, which boosted vehicle demand and helped revive overall consumer and business confidence. Moreover, the massive pool of funding supplied by the Chinese central bank since the end of 2008 has enabled the country to overcome the liquidity crisis caused by sluggish demand for its exports in key overseas markets such as Europe and the Middle East. China's purchasing managers' index (PMI) still remains above the neutral mark of 50, indicating continued expansion of manufacturing activities in the country.

Among the key factors that have continued to support automakers in China since the second quarter of 2009 have been the government's market support measures, primarily, the purchase tax break on vehicles with engines below 1600cc and the nationwide replacement programme for fuel-efficient vehicles and those with alternative powertrains. According to data released by the CAAM, the Chinese automakers launched almost 221 new passenger vehicles onto the market last year (although most of these were modified versions of existing models), while the JVs of foreign automakers also followed suit. This helped the overall market, and sales of passenger vehicles with engines less than 1600cc surged by almost 70.0% y/y during 2009 to 7.19 million units, contributing about 70% of total passenger car volumes. Furthermore, the lower base of comparison seen during the latter half of 2009 also helped China surpass the United States to emerge as the largest global vehicle market during the year (see China: 12 January 2010: China Records Bumper Rise in Vehicle Sales During 2009, Overtakes U.S. as World's Largest Market), with the gap set to widen further during this year. Meanwhile, the massive funding supplied by the Chinese central bank has extended an opportunity for global majors in particular—GM, VW, Ford, and the like—to offset their comparatively weaker sales in key markets such as the United States and Europe.

Moreover, what has the potential to change the course of the Chinese vehicle market in the coming months is the local government's impending official vehicle procurement guidelines, which will discourage acquisition of vehicles made by overseas automakers' local JVs (see China: 2 March 2010: Chinese Government to Change Official Vehicle Procurement Guidelines—Report). Continuing its initiatives, the government is now also considering withholding regulatory approval for local vehicle manufacturers' production capacity expansion plans unless they first pledge to acquire a fellow Chinese automaker (see China: 29 January 2010: Chinese Government Considering Further Measures to Encourage Consolidation in Automotive Industry). It is even planning to invest up to 300 billion yuan (US$43.9 billion) in a "green car" development programme, and extending subsidy on retail purchases of electric vehicles (EVs; see China: 8 March 2010: Chinese Government Mulling Subsidy on EV Retail Purchases—Report).