Analysis: Predictions for the Chinese automobile industry in 2012

Gasgoo.com (Shanghai) - The rapid growth the Chinese automobile market has seen over the past last two years has finally come to a halt in 2011. Sales growth rates of over 30 percent, as was the case last year, have been replaced by figures in the single digits. This has, no doubt, been of great alarm to manufacturers in the country. Gasgoo.com (Chinese) conducted a recent survey on the automobile market in China, polling 2,179 experts from across the industry. Despite a recent upturn in sales recently, there is a general consensus that the market next year will be even bleaker, with most experts advising manufacturers to maintain a cautious attitude.

The first question of the survey asked how much respondents believe sales will increase in 2012. 40 percent of respondents predicted an increase in sales of five to ten percent, while 39 percent forecast an increase of five percent or less. Meanwhile, 12 percent were fairly pessimistic, voting that sales would decrease next year, while only nine percent predicted an increase of over ten percent.

The Gasgoo.com report believes that a growth rate of around ten percent for the market seems most accurate, a figure which matches predictions for national GDP growth.

Excessive consumer demand over the past two years, sub par macroeconomic conditions, increasing production costs and inflation of the yuan are all factors behind the poor performance of the Chinese market. Coupled with the withdrawal of economic stimulus policies and the introduction of legislation designed to limit the number of new registered vehicles, such as the registration plate lottery in Beijing, it should be no mystery as to why consumer demand for automobiles has decreased this year.

How domestic brands will fare in 2012 is another question of concern. Only 15 percent of respondents believed that domestic brand vehicles would sell better than other automobiles next year. The majority of respondents, 38 percent, placed their hopes on joint venture vehicles, while 29 percent and 17 percent believed that JV own brand and imported models would perform well, respectively.

With ever increasing pressure from foreign rivals and without the aid of preferential government policies, domestic brands have had a hard time competing in an already tense market. Of course, there is a school of thought that believes that increased competition will force domestic manufacturers to develop more well-built and innovative models, which will ultimately help increase the quality of the market overall. Some respondents recommend that domestic manufacturers should take this time to strengthen their positions in their respective segments and not try to expand beyond their reach.

The third question on the survey focused on the performance of the individual market segments in 2012. 29 percent of respondents believe that the market for SUVs will perform strongly next year. SUV sales maintained a steady growth rate of 5.9 percent. October, a trend which looks set to continue in 2012 with a plethora of new models on the horizon.

On the other end of the spectrum, there is not much confidence in the minivan segment, with only nine percent of respondents believing that the market will perform well next year. With the exception of only a few top-selling models, such as the Buick GL8 and Volkswagen Touran, most minivans saw their sales figures decrease in the first ten months of 2011. Compared with other segments, the market for minivans in China is still in relative infancy.

Subcompacts still remain one of the most competitive segments in the Chinese market, with 20 percent of respondents forecasting the segment to perform well in 2012. By contrast, only four percent are optimistic that compacts will do well. Compacts gained a lot from economic stimulation policies, and their withdrawal has dealt a large blow on the segment. According to statistics from the China Association of Automobile Manufacturers, 818,000 automobiles with an engine size of 1.6 L or less were sold in October, a slight decrease from the previous year.

Finally, previously rampant growth in the market for luxury automobiles has finally started to slow down in the past few months, although 18 percent of respondents still have faith that the segment will do well next year.

With an uncertain future for the market in 2012, there is still debate in the industry on what role the government should play. The final question of the survey asked participants whether or not it is necessary for the government to interfere in the market. 53 percent of respondents disagreed with the government helping the market, while 27 percent said they would support such actions and 20 percent were undecided. This is in contrast to a similar survey done a few months ago regarding the second half of this year, in which a clear majority (78%) of the 3,182 respondents opposed government intervention.

As always, the automobile market in China is becoming more and more competitive with every passing moment. While there is much debate on what exactly 2012 will bring, both domestic and foreign manufacturers will have to find a way to overcome both old and new challenges to succeed.