Analysis: Predictions for Chinese automobile market in Q4

Gasgoo.com (Shanghai) - Excessively rapid growth in the Chinese automobile market came to a halt in 2011, with final sales growth rates in the single digits. Coming in 2012, many expected the market to recover again, but ultimately, sales growth continued to decline, reaching its lowest point in July. Despite a recovery in the following month, when year-on-year sales growth reached 8.26 percent, growth rates slowed down again in September. However, worth pointing out is that sales growth of domestic own brands reached a record high in September, while sales of Japanese vehicles dropped disastrously. How will these trends factor into the market's fourth quarter performance? How will the last three months of the year play out?

In order to gain more insight on the topic, Gasgoo.com (Chinese) conducted a week-long survey on the issue, collecting opinions from 1,023 analysts and experts from within the Chinese automotive industry.

In the first question of the survey, participants were asked about their market expectations for the fourth quarter. 46 percent of participants anticipate overall sales growth of five to ten percent, while 30 percent were more pessimistic, expecting final growth rates to be less than five percent. By comparison, only nine percent believe that market growth will exceed ten percent. 15 percent of respondents were undecided.

The period following the National Holiday and the end of the year, both of which are traditionally strong seasons for the Chinese automobile market, fall in the fourth quarter. Furthermore, several manufacturers are implementing promotional offers in order to achieve sales targets announced at the beginning of the year. The first six months of 2012 have not been especially good for the automobile industry, with only three of the 24 main manufacturers managing to complete half of their yearly sales goals by July.

Several in the industry worry that increasing fuel costs, rising levels of traffic congestion, growing anti-Japanese sentiment and poor overall macroeconomic conditions will keep sales down in the fourth quarter. In their eyes, it will be fortunate if the market is able to sustain current growth rates until the end of the year.

One of the major events that shook the market in the third quarter was the plunge that Japanese automobile sales took in August and September. Following reports that the Japanese government would take action to nationalize the disputed Diaoyu Islands in the East China Sea, demonstrations advocating the boycott of Japanese goods began to flare up across the country. Reports of participants vandalizing and destroying Japanese brand cars during these activities also began to appear on a more and more frequent basis. In the end, sales of Japanese vehicles fell a dramatic 41.3 percent in September.

When asked whether or not Japanese automobile enterprises' performance in China will continue to decline in the fourth quarter, the overwhelming majority of respondents, 89 percent, agreed. Only two percent answered that their sales will recover, while the remaining nine percent were undecided.

Aside from the negative influence brought on by the territorial dispute, which has already driven away many prospective buyers and forced many manufacturers to cut down or temporarily halt production, the decreasing competitiveness of Japanese vehicles has been cited as another factor behind their declining market performance. In the past, Japanese models were praised for their low fuel consumption rates, affordability, safety and reliability. However, new models introduced by foreign enterprises and even some released by domestic companies have come close to matching or even surpassing the standards set by Japanese vehicles, which has led to Japanese automobile manufacturers' Chinese market share gradually fall year by year. It will not be easy for them to reverse this trend.

In the third question of the survey, participants were asked whether or not they believe sales of domestic own brand manufacturers will improve in the remaining three months of the year. 46 percent of respondents were pessimistic, responding that such a recovery would be highly unlikely. However, 24 percent maintained that own brand sales will pick up again. 30 percent were undecided.According to China Association of Automobile Manufacturers Secretary General Dong Yang, own brand manufacturers' combined share in the passenger automobile market has been on a steady decline from January to August, when it reached its lowest point of 36.4 percent. However, the following month own brands experienced somewhat of a resurgence, with their combined passenger automobile sales totaling 561,900 units and held market share reaching 42.7 percent. Own brands sales in September were 26.6 percent and 7.5 percent than respective figures from August and last September, reversing an ongoing trend of negative sales growth rates.

Despite the recovery in their sales growth rates in September, several in the industry have their doubts that own brands will be able to maintain this positive performance into the fourth quarter. They point out that high inventory levels has put a lot of pressure on own brand dealerships. Another matter of concern is potential legislation that will give equal status to Sino-foreign joint ventures and own brands. If the legislation, which was announced by the Ministry of Industry and Information Technology and National Development and Reform Commission, goes through, joint ventures would be eligible to receive the same economic grants and aid packages that are granted to own brands, essentially nullifying some of the cost advantages own brands possess.

However, there is still a significant number of industry figures who are hesitant to cast predictions on the state of own brands in the upcoming months. The Chinese market, after all, is heavily influenced by the government. If new policies aimed at supporting own brands are announced, it could greatly aid their overall market performance.

Finally, there are those who point to the increasingly notable performance of own brands overseas businesses and the rise of Chinese automobile exports in general as signs that a 'second spring' for own brands may be on the horizon. Own brand export sales over the first six months of this year totaled 487,900 units, representing year-on-year growth of 28 percent. China's cumulative automobile exports may break the 100,000 unit mark this year, with their total value potentially reaching $17.47 billion.

In the last question, participants were asked about their opinion regarding high inventory levels automobile dealerships across China have had to deal with over the year. The majority of respondents, 58 percent, believe that inventory levels will not increase in the fourth quarter. 24 percent disagreed with that notion, saying that inventories will slightly decrease, while 18 percent remained undecided.

A recent study carried out by the China Automobile Dealers Association revealed that dealerships' inventory levels have been on the rise until June, when they reached their peak of over 1.98 points on the inventory index. Although that number decreased to 1.7 points in July, it is still well above the recommended maximum level of 1.5 points.

With inventory levels the way they are, manufacturers will be putting a lot of pressure on dealerships to make sales. Furthermore, the manufacture of passenger automobiles in China remains one of the country's key GDP drivers, so it isn't especially simple for manufacturers to simply reduce production volumes. In the future, manufacturers will have to take better measures to prevent inventory levels from rising too quickly in order to prevent the sort of problems they are dealing with nowadays.