China's vehicle market is growing overall, with passenger vehicle sales jumping 9.2% in the first half of the year, mainly once again on the back of strong demand for sport utility vehicles.
IHS Automotive perspective
- Significance: The main significant trend is that lower-priced Chinese brand models in the SUV segment specifically continue to gain ground in China.
- Implications: International automakers are bringing in models they hope will counter the surge in demand for Chinese brand SUVs.
- Outlook: Despite the large state-owned automakers that have strong JVs with international brands leading the market, the high growth is coming from local models, built for Chinese consumer tastes, with small engines that can gain from the cut in purchase tax.
In June, a total of 2.07 million vehicles were sold in China, marking an annual increase of 14.6% year on year (y/y), according to data from the China Association of Automobile Manufacturers (CAAM). In the first half of the year, vehicle sales in China were 12.83 million units, up 8.1% y/y.
Passenger vehicle (PV) sales, which CAAM defines to include sedans, sport utility vehicles (SUVs), and multipurpose vehicles (MPVs) and minivans/minibuses, witnessed sales of 1.78 million units in June, marking an annual increase of 17.7% y/y. In the first half of 2016, a total of 11.04 million PVs were sold in China, according to the CAAM's data for wholesale deliveries. This marks an annual increase of 9.2% y/y.
The main growth has been spurred on by the sport utility vehicle (SUV) segment, which rose 44.3% y/y, and MPV sales also increased by 18% y/y, while sedan sales dropped 3.9% y/y and crossover vehicles such as the minivans and minibuses witnessed declines of 32.6% y/y. Meanwhile, the sales volume of vehicles fitted with engines of 1.6 litres and smaller amounted to over 72% of the PV market in China.
The conglomerate automakers that have joint ventures (JVs) with international automakers continue to lead the market. The SAIC Group, which has JVs with Volkswagen (VW) and General Motors (GM), continues to lead the market with sales of 2.989 million units in the first half of the year, marking an annual increase of just 5.12% y/y. The Dongfeng Group, which has JVs with Nissan, Honda and PSA Peugeot Citroen, saw sales of 1.927 million units in the first six months of the year, marking an increase of 4.69% y/y. The FAW Group came in third with sales of 1.485 million units in the first half of the year, up 8.22% y/y, and the Changan Group's sales were up just 1.2% y/y to 1.483 million units.
In fifth place was the BAIC Group, which has JVs with Daimler for the production of Mercedes-Benz cars in China and with Hyundai. BAIC witnessed sales growth of 10.65% y/y, with a total of 1.3 million units sold in the first half of the year. BAIC's growth stems from increased success at both its joint ventures. The sale of Mercedes PVs in China has increased significantly in the first half of the year, as the German premium brand has increased its product offerings with more locally produced models including SUVs on sale in China. Meanwhile, the South Korean Hyundai brand also witnessed growth with sales of its SUVs rising on the back of increased brand awareness of the brand following a successful product placement marketing campaign.
The Guangzhou Automobile Group Corp (GAC) was in next place, also witnessing significant sales growth of 30.03% y/y in the first half of the year to a total 738,819 units. Great Wall followed with growth of 8.41% y/y and 450,252 units sold, ahead of Brilliance, whose sales were up just 1.57% y/y to 404,924 units sold.
Chinese automakers Anhui Jianghuai Automobile Corp (JAC), Geely, and Chery Automobile followed with growth of 13.09%, 11.95%, and 11.37% respectively in the first half of the year.
Outlook and implications
The growth of the industry comes from pockets of growth across different automakers, with some now bringing in solid double digit growth rates. Also important to remember is that June 2015 marked the beginning of a major summer lull in China, which was the main reason the government brought in the sudden cut in the new car purchase tax for vehicles with engines of 1.6 litres and smaller. The tax cut, which was introduced in October 2015, continues to run for this calendar year and cuts the new car purchase tax for these small-engine vehicles to 5%, down from 10%. The tax cut is now one of the main reasons for continued growth in sales of PVs with smaller engines.
So which models have caused certain OEMs to witness these strong growth rates? As mentioned the BAIC Group is witnessing growth mainly on the back of strong growth of Mercedes models in China, plus growth from Hyundai in China. Mercedes' sales are up mainly on the back of the GLA SUV and the C-class sedan, IHS Automotive light-vehicle sales forecast analyst Sussanna Huang says. However, BAIC's SUV and MPV models, the S6 and Huansu H3, have also witnessed significant growth and were only launched in the second half of 2015, bringing in around 70,000 units in sales in the first half of the year.
GAC Group sales are up on the back of sales of its Trumpchi brand, with YTD sales up by around 101,000 units in June. The main star of the show is the Trumpchi GS 4, says Huang. However, GAC JVs with Honda and Toyota have also brought in growth in the first half of the year.
For JAC the main growth stems from its Refine series. The Refine S3 continues to be popular and this SUV brought in sales of almost 100,000 units in the first six months, while the new Refine S2 which has also been a popular new model.
Geely has gained from its new SUV model the Boyue as well as its new Emgrand GS, while Chery has gained from the new Arrizo 5 model which was recently launched.
The overriding trend is that Chinese brands are now witnessing growth in their domestic market, despite a continued slump in exports. In June Chinese brand passenger cars accounted for 717,000 units, marking an annual increase of 24.7% y/y and making up 40.2% of the PV market China, per CAAM data. The main surge in demand for Chinese brand PVs comes from the SUV segment within which Chinese brands' cheaper SUVs, fitted with small engines have gained considerable ground in the domestic China market. Chinese brand SUVs sold 347,000 units in June, up 62.1% y/y and accounting for 54.9% of the SUV market. Sales of Chinese brand MPVs have also risen to 149,000 units, up 43.5% y/y.
In the first half of the year, the trend is even more apparent with Chinese brand PVs accounting for 42.9% of the total PV market, with sales of 4.735 million units. Again, SUV sales push up the Chinese brands, with total Chinese brand SUV sales of 2.171 million units, up 52.3%y/y.
However, international automakers are now fast bringing in models they hope will give them access to the less expensive mainstream market, and competition in China is set to get even tougher.
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