China's January car sales are a false dawn?

Shanghai, February 18 (Gasgoo.com) "Personally, I expect the auto market to grow by 10% this year," Dong Yang, executive deputy director of China Association of Automobile Manufacturers (CAAM), told reporters recently, while only one month ago he predicted that the auto sales growth will stay at 5% in 2009.

The Chinese auto market got off to a good start this year by selling 725,500 vehicles in January, overtaking the U.S. sales, which has brought a ray of hope as well as some pleasant surprise to the China's auto makers and industry experts alike. The national information center even has scaled up its previous forecast of the 2009 auto market growth to 8% from 6%.

However, the remarkable growth in the first month's auto sales may be seen as a false dawn, rather than a harbinger of market recovery, as this initial growth this year was mostly an immediate result of the government's newly released stimulus packages for the auto sector. Therefore, it is still early to project that China's auto sales in 2009 will break the 10 million-unit mark as eagerly expected by some industry experts.

Indeed, most sales growth in January was spurred by small-engine car sales tax cuts and other incentives. CAAM data show that all the vehicle models with the engine size larger than 1.6 liters saw their sales drop last month, with the sales of 1.6-liter to 2.0-liter models down more than 20%, while the sales of vehicle models with the engine size below 1.6 liters grew 18.8% from December 2008, also up 1.5% from a year earlier.

China's stimulus plans for the automobile industry have been quite effective so far. The January statistics show that small car tax cuts have boosted sales of low-emission vehicles. But some supportive policies may not last long and their positive effect will fade out gradually by the end of this year. "We should look at the market with cautious optimism in the coming months," suggested a CAAM official.

March is a crucial month in a year for most car makers and dealers. Usually auto sales in March would be low, and if the sales grow to a high level in March, then the whole-year sales growth can be positively predicted. In addition, the macro-economic climate will also affect the auto sales growth. Many experts have predicted that the recovery of the Chinese market will come in the second half of this year.

As the Chinese government has encouraged the development of energy-efficient, eco-friendly vehicles, and their market demands have been increasing, carmakers have come to realize that low-emission cars and alternative-energy vehicles will lead the trend of China's auto industry.

Clean, small cars are in great demand and will push up China's auto sales, which is a message conveyed by the January market performance. This meassage is a signal to tell carmakers in which direction they should move.