Chinese Vehicle Sales Surge 96.4% Y/Y in November; Government Extends Incentive Measures Into 2010

Vehicle demand in China once again surged during November as customers continued to take advantage of the ongoing incentives put in place by the government and the lower base comparison month of November 2008. According to data released by the China Association of Automobile Manufacturers (CAAM) and published by Reuters, total vehicle sales during the month rose by 96.4% year-on-year (y/y) to 1.34 million units. Although the Chinese market has avoided the worst of the global financial crisis, it was nevertheless affected in November 2008 when sales fell 15% y/y. Nevertheless, year-to-date (YTD) sales in the first 11 months of 2009 now stand at 12.23 million units, an increase of 42.4% y/y and up from the total number of vehicles sold in the Chinese market during the whole of 2008.

Of the monthly total, passenger cars accounted for 1.04 million units, a jump of 98.2% y/y, while for the year to date (YTD) the growth rate in this segment is now 49.7% y/y, equating to 9.23 million units. Total commercial vehicle (CV) sales for the month also soared to about 300,000 units, taking this category's YTD sales to over 3 million units.

By brand, the top-selling vehicle manufacturer during November was General Motors' (GM) three-way mini-CV joint venture (JV) with Shanghai Automotive Industry Corporation (SAIC) and Liuzhou Wuling Automobile, SAIC-GM-Wuling, whose sales totalled 83,753 units. Second place was occupied by GM's other passenger car JV with SAIC, Shanghai GM, as it sold 73,362 vehicles during the month. Volkswagen (VW)'s JV with local automaker First Automotive Works (FAW) Group, FAW VW, ended November in third place, having sold 65,359 units; closely followed by the German automaker other JV in the country with SAIC, Shanghai VW, with sales of 65,166 units. Hyundai's JV with local automaker Beijing Automotive Industry Holding (BAIC), Beijing Hyundai, came in fifth with 55,576 units. These standings were largely replicated in the YTD, with Shanghai VW swapping positions with Shanghai GM by rising to second place.

Meanwhile, in addition to extending the purchase tax break on vehicles with engines less than 1600cc and increasing the subsidy under the nationwide vehicle replacement subsidy programme, the Chinese government revealed on its website (www.gov.cn) that it will also extend rebates on alternative-fuel vehicles. The government said that its pilot programme introduced in February 2009 for "new-energy" vehicles will be expanded from 13 to 20 cities, although no particular timeline and other details have been disclosed so far. This programme, which subsidises the purchase of alternative-powertrain vehicles for public agencies and other fleet operators, will now promote the use of electric, hybrid and fuel-cell vehicles to public transport operators, taxi firms and postal and sanitary services. As part of its new plans, a subsidy programme targeting retail purchases of such vehicles will also be implemented in five cities across the country, with Beijing being the first city to offer benefits under the new programme.

Outlook and Implications

The Chinese government's ongoing incentives have strongly propelled the Chinese vehicle market during this year, offsetting the after-effects of the global economic downturn that began during the latter half of 2008 (see China: 30 November 2009: Chinese Government to Continue Vehicle Replacement Subsidy; Reportedly Mulling Further Tax Cuts). Consumer confidence in the market has recovered thanks to support for the overall economy from the Chinese government, which has increased investment around the country and attempted to stimulate demand for locally produced products. Moreover, those areas of the market specifically targeted by the subsidies have outperformed all expectations, with traditional passenger cars being the beneficiary of a reduction in purchase tax to 5% on vehicles with engines below 1600cc. According to data released by CAAM, sales of passenger vehicles in this category surged 60.4% y/y during the first three quarters of this year to 5.06 million vehicles, contributing to about 85% of the overall passenger car volumes in the year-to-date (YTD) period. Vehicle sales have also improved in the country as a result of the government's measures to incentivise owners in rural communities to replace their highly polluting vehicles with new fuel-efficient models, a scheme that has subsequently been expanded nationwide and to include passenger cars with an engine above 1600cc and small and mid-sized trucks.

Automakers remain bullish about their prospects for the current year, with many raising their expectations on the back of the strong demand. Hyundai has already raised its sales forecast for the year to 500,000 units (see China: 8 December 2009: Hyundai Intends to Raise Chinese Production Capacity by 60% Until 2012). Kevin Wale, president of GM China, recently said that he expects GM's sales for the year to rise 47% from 2008, to around 1.6 million units from its two JVs (see China: 2 December 2009: GM Records 109.5% Y/Y Sales Growth in China During November). Even smaller local automakers such as Chery, BYD, and Geely are now on the verge of surpassing their ambitious sales targets for the year.

The current growth momentum in the Chinese market is expected to continue in the final month of this year as the extension of government-funded incentives until 31 December 2010 will continue to bring buyers to the market. The sales figures for the next few months are also expected to benefit from a low annual base of comparison. The Chinese government and CAAM firmly believe that overall sales in the country will now surpass the 13-million-unit mark this year, comfortably outperforming the United States as the biggest vehicle market globally. IHS Global Insight broadly agrees with this assessment, as we forecast that Chinese passenger car demand this year will rise by 45.2% y/y to 8.3 million units and that LCV sales will increase by 42.7% y/y to over 4.1 million units, with total light vehicle sales volume of more than 12.4 million units, up 44.4% y/y. However, despite the government having now extended its support measures for another one year, it remains uncertain whether this growth momentum is sustainable (see China: 23 November 2009: Automakers Gearing Up for Further Growth in China). The intensifying competition and potential complacency thrown in by the extension of incentives for another year could lead to a hangover in the early months of 2010, although we currently expect a light-vehicle growth rate of around 9% next year.