Retail vehicle sales in China have dropped on a year-to-date basis, while wholesale sales of passenger vehicles have risen 6.29% in the first two months of the year.
IHS Markit Perspective:
- Significance: Chinese vehicle sales are directly correlated to market forces now more than ever, as the lack of major government incentives is being felt, with demand for SUVs in the mainstay and premium segments boosting growth.
- Implications: IHS Markit automotive’s outlook for 2017 is that the Chinese vehicle market will indeed feel the effect of the lack of the major government incentive scheme that caused a bumper year of sales in 2016. Therefore, we forecast a low sales growth rate this year based on continued growth in demand from lower-tier cities in the country.
- Outlook: The CAAM data show that overall wholesale vehicle sales in China have risen 8.84% in the first two months of the year, with over 4.45 million vehicles moved from production bases to dealership outlets in the period.
Summary data released by the China Association of Automobile Manufacturers (CAAM) show that, in February, China's total vehicle market, which includes passenger vehicles (PV) and commercial vehicles (CV), witnessed an increase in sales of 22.37% year on year (y/y) to 1,939,200 units. Meanwhile, local production hit 2,159,600 units, marking a 33.77% y/y increase.
China's PV sales in February reached 1,632,700 units, up 18.29% y/y, with production volume reaching 1,845,000 units, up 31.5% y/y. CV sales in the month hit 306,500 units, up 49.9% y/y, while production volume hit 312,200 units, up 49.04% y/y.
On a year-to-date (YTD) basis, sales and production of the total vehicle market have also risen. Total vehicle sales in January and February reached 4,459,100 units, an increase of 8.84% y/y, while production in the market increased 11.07% y/y to 4,529,000 units. Of these, PV sales accounted for 3,851,300 units, up 6.29% y/y, while production reached 3,919,300 units, up 9.89% y/y. CV sales hit 607,800 units in the two-month period, up 28.28% y/y, while production reached 607,800 units.
The CAAM defines PVs to include sedans, sport utility vehicles (SUVs), multi-purpose vehicles (MPVs), and minibuses. Within the PV segment, the fastest growth was in the SUV segment. Of the total PV sales of around 1.6 million units in February, the sedan segment witnessed the highest volume at 769,300 units, up 15.14% y/y. The SUV segment sold a total 672,500 units, up 40.01% y/y. However, the MPV segment's sales fell 15.16% y/y to sales of 147,900 units, while the minibus or crossover-type vehicle segment sold just 4,300 units, down 25.11% y/y.
Outlook and implications
The CAAM data, which show wholesale vehicle sales in the month, which essentially means the movement of vehicles from production bases to dealerships, tallies well with the China Passenger Car Association (CPCA) data, which were released yesterday (9 March) and show retail sales in the month. In China, dealers generally do not keep more than a month’s inventory in their dealerships, so retail sales and wholesale sales should tally to some degree.
In February, the CPCA reported PV retail sales of 1,498,184 units, while in the YTD, sales reached 3.6 million units. CPCA data show growth of 8.9% y/y in February, while YTD sales dropped 2.9% y/y. Meanwhile, the CAAM data show PV wholesale sales of 1,632,700 units in February, while on a YTD basis, sales reached 3,851,000 units. CAAM data show growth of 18.29% y/y in February, while YTD sales were up 6.29% y/y.
So, the retail sales and wholesale sales both grew in February, but on a YTD basis, retail sales were down while wholesale sales were up, as dealers are increasingly under pressure to keep stock following a strong end to 2016. A number of dealers have in recent times pushed back against the OEMs over the high growth targets set for them, given that the market is now correlated to actual market forces to a greater degree than in previous years when the market was responding to the stimulus from the 50% cut in the new-car purchase tax for small-engine vehicles, which this year has been changed to a 25% discount for cars with engines of 1.6 litres or smaller produced and sold in China. The number of reports that have emerged involving dealers include losing contracts due to a failure to meet targets set by OEMs. Meanwhile, other dealers are seeking compensation from brands whose vehicles they sell due to a lack of models that the market wants, meaning instead they are being made to keep high levels of unsold inventory. In other cases, brands have strengthened partnerships with local banks to offer financing deals to their dealers.
Meanwhile, a number of automakers have reported solid sales growth in February, while others have reported declines as the market challenges those that do not have 'new' models, especially in the sedan and SUV segments, which are appropriately priced to entice consumers in China's lower-tier cities. The automakers that have benefited considerably so far this year are those that introduced new models in 2016, from which they are still gaining sales growth on a y/y basis, while also introducing SUVs at an affordable price point that local consumers want.
However, a number of international automakers have reported declines in their sales in China. Both General Motors (GM) and Ford have witnessed double-digit rates of decline in sales in China in the YTD, with GM's down 14.8% y/y and Ford's down 21% y/y. GM sold 567,994 units in the first two months in China, down from 666,713 in the same period a year earlier.
At the same time, demand for premium models continues to grow in China, with the well-heeled middle class looking to use premium SUVs to move their families around safely. Premium brands such as Cadillac and Acura have reported solid sales growth and this is on the back of these brands having increased their locally produced models in China in 2016, and so they are benefiting from these new model line-ups. Acura's sales climbed to 800 units in February, up from just 175 units in the same month a year earlier. The CDX's sales were 716 units in February and totalled 1,295 units in the first two months. The compact sport utility vehicle (SUV) was designed for China. Production of the model in the country started under the Guangzhou joint venture (JV) in 2016 and its production totalled 10,514 units in the first year. Meanwhile, Cadillac sold 9,034 units in China in February, up 89.6% y/y, bringing its YTD sales in the country to 27,045 units, up 106.4% y/y. The model behind this growth for Cadillac was the XT5 SUV, which was introduced to the brand's local production line-up in 2016. Cadillac is expected to bring in more SUV models to its Chinese line-up, specifically targeted at local consumer tastes.
BMW's sales in China hit 92,045 units in January–February, up 14.7% y/y. In February, Mercedes-Benz sold 36,277 units in China, up 41.9% y/y, and bringing its YTD volume in the country to 95,076 units, up 40.3% y/y, and beating BMW’s volume.
Overall, IHS Markit automotive forecasts point to a year of growth, but at single-digit rates and, therefore, far slower than witnessed in 2016, when the market had bumper sales on the back of government stimulus policies.
For full-year 2017, IHS Markit currently forecasts a 1.6% y/y increase in light-vehicle sales in China. We expect passenger vehicle sales in China, which include SUVs, sedans, and MPVs only, including both locally produced and imported models, to witness sales of 23.53 million units, up 1.9% y/y. Please note IHS Markit definitions differ from those of the CAAM. We do not include minibuses in PVs, and these are included as part of the light commercial vehicle segment. Our definition of light vehicles therefore includes passenger vehicles (sedan, SUV, MPV only) plus light commercial vehicles.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.