Local brands are continuing to witness relatively high sales growth rates in the Chinese vehicle market, but the high base of comparison last year is forcing automakers to offer price discounts to achieve growth in a cooling market.
IHS Markit Perspective
- Signifcance: SAIC, GAC, Geely, and Great Wall have reported sales increases in October, with the majority of the growth coming from newly launched models.
- Implications: China's light-vehicle market is expected to witness growth of around 1% this year, IHS Markit forecasts show, while passenger vehicle sales rise by 3.3% on the back of OEM and dealer-led activity in the market.
- Outlook: With the Chinese government's stimulus policy having a reduced effect this year due to just a 25% cut in the new-car purchase tax for small-engine models, the market players are responding by bringing in alternative discounts to bring about growth in the cooling market.
Automakers are beginning to report sales in China for October, and while some have witnessed growth, others are still struggling to gain sales in the market, given the high base of October 2016.
Shanghai Automotive Industry Corp (SAIC) Group has reported total sales of 657,199 units in October, marking an increase of 6.27% year on year (y/y). On a year-to-date (YTD) basis, the group has sold a total of 5,478,566 units, an increase of 7.4% y/y.
The SAIC Group consists of nine subsidiary automotive companies. The top volume player in October was the SAIC-General Motors (GM) joint venture (JV), which sold 201,312 units, a 9.43% y/y increase. The SAIC-Volkswagen (VW) joint venture followed with monthly sales of 193,782 units, marking an increase of 3.07% y/y. The SAIC-GM-Wuling (SGMW) joint venture came third, with sales of 192,288 units in October, a decline of 1.4% y/y. The SAIC Passenger Vehicle Company, which makes and sells MG and Roewe brand models, sold 51,608 units in October, marking an increase of 28.26% y/y, while the SAIC MAXUS company sold 8,068 units, up 91.55% y/y. The group's subsidiary JV company in Thailand sold 1,164 units in October, up 76% y/y. However, the highest growth rate came from the SAIC-Iveco Hongyan Commercial Vehicle Company, which sold 3,611 units in October, up 225.6% % y/y.
On a YTD basis, the top company within the SAIC group was SGMW with sales of 1.68 million units, up 1.62% y/y. SAIC-VW was next with sales of 1.66 million units, up 3.12% y/y, while SAIC-GM sold 1.56 million units, up 5.82% y/y.
Guangzhou Automobile Group Corp (GAC) has reported sales in October of 175,703 units, marking an increase of 11.14% y/y. On a YTD basis, the automaker sold a total of 1,642,264 units, an increase of 25.64% y/y.
GAC group is made up of nine subsidiary companies. The top volume-selling entity of the conglomerate in October was the Guangzhou Honda JV with sales of 68,867 units, up from 62,933 units in the same month last year. In second position was Guangzhou Motor Company, which sold 45,452 units in October, up 14.05% y/y. In third place was the GAC-Toyota JV with sales of 33,217 units, down 2.4% y/y. In fourth place was the GAC-Fiat Chrysler Automobile Company JV, which sold 15,319 units in October, up 22.18% y/y. This was followed by the GAC-Mitsubishi JV with sales of 11,013 units, up 46.49% y/y.
On a YTD basis, the GAC group's top-selling company was GAC-Honda with sales of 571,839 units, up 14% y/y. GAC Motor came second with sales of 421,672 units, up 41.82% y/y. GAC-Toyota was third with sales of 372,231 units, up 7.81% y/y, while the GAC-Fiat Chrysler Automobiles (FCA) JV came next with sales of 166,872 units, up 45.39% y/y. In next place was the GAC-Mitsubishi JV, which sold 92,352 units in the 10-month period, up 165.98% y/y from 34,722 units in the same period a year earlier.
Geely Automobile has reported sales in October of 125,118 units, an increase of 30% y/y. On a YTD basis, Geely sold a total of 952,226 units, an increase of 72% y/y.
Sales of Geely models are mainly in its domestic market, with sales in China accounting for 124,360 units in the month, up 30% y/y, while exports hit just 758 units in October, down 32% y/y. Geely has gained growth in the domestic market from its new models launched this year. "During the month of October 2017, all the Group’s four new models launched in 2016 maintained high levels of sales volumes, three of which reached record high monthly sales volume during the month," the automaker said in a statement.
Great Wall Motor has reported total sales of 108,008 units in October, marking an increase of 3.02% y/y. On a YTD basis, the automaker sold 813,514 units, up 2.35% y/y. Exports of Great Wall models hit 3,468 units in October, up 115.94% y/y, while on a YTD basis, exports reached 33,788 units, up 151.03% y/y from 13,460 units in the same period last year.
For Great Wall, the top-selling model remained the Haval H6 with sales of 49,015 units in October, down 13.5% y/y, while on a YTD basis, the model sold 397,195 units, down 7.6% y/y. Despite some growth for other models, the sales volume was still concentrated around the H6. Sales of the Wingle pick-up, for instance, increased to 9,418 units in October, up 11.8% y/y, while on a YTD, the model sold 94,229 units, up 11.66%. The Haval H8's sales were also up, rising 23.55% y/y in October, but the volume was low at just 618 units. The new Wey brand has two models, the W5 and W7, with sales of 8,014 units and 8,153 units in the month respectively, and with combined YTD sales of the Wey brand at 44,618 units.
Ford Motor Company has reported sales in the month of 106,000 units in China, marking an annual decline of 5% y/y. Within this, the Changan Ford Automobile Company JV sold a total of 73,551 units, down 11% y/y, while the Jiangling Motors Corp (JMC) JV sold 25,275 units, down 6% y/y. The Lincoln brand sold a total of 5,514 units in October, up 48% y/y, while total Ford brand imports reached 1,469 units, up 13% y/y.
For the YTD, the automaker has reported sales in China in the first 10 months of the year of 939,000 units, marking a decline of 5% y/y. Of this, Changan Ford sold 640,290 units, down 14% y/y, while JMC sales were up 15% to 236,537 units. Lincoln sales were up 85% y/y to 45,729 units in the 10-month period.
Outlook and implications
Overall, the Chinese market had a tough fight to gain against the high base of October 2016, when the passenger vehicle (PV) market grew 20%. There are, however, pockets of growth and it is these areas that automakers are targeting to gain growth in the market, which is cooling. Sport utility vehicles (SUVs) continue to be a growth area in China, although overall the growth of the segment is calming; however, it is still a pocket of growth in the market and therefore continues to attract players. New models are a way to gain the media spotlight, push brand penetration, and thereby gain new consumers in China.
In 2017, Geely has brought in four new models, which are significantly helping the brand with sales, specifically its new SUV models. The Boyue SUV sold 30,138 units and the Emgrand GS crossover sold 16,063 units in the month, while the Vision SUV sold 11,214 units. The new Emgrand GL sedan sold 13,513 units in October.
GAC has gained from its Trumpchi (Chuanqi) brand, which continues to bring new models to the market at an affordable price point, which is coupled with a host of advanced technologies that are attracting local consumers. In 2017, GAC has introduced five new models under the Trumpchi brand, including the GS3 and GS7. The automaker is to launch more models at the upcoming Guangzhou Motor Show, including the GM8 multi-purpose vehicle (MPV), while it will also reveal a facelifted variant of the GS4.
Great Wall continues to struggle to gain growth mainly on the back of the high growth previously for its top selling H6 model. Despite a number of attempts to launch new variants of SUVs, as well as to raise the price threshold by bringing in higher specification models, on the whole the local consumer market is not that easily swayed and the automaker continues to offer strong price discounts to entice consumers as it continues to mainly rely on the H6.
SAIC Group's own brands continue to gain also on the back of newer models, including SUVs. However, the automaker does continue to rely on its JVs with international automakers VW and GM to bring in the bulk of its sales.
Ford is gaining from its venture in the light commercial vehicle market, as well as larger SUVs built with JMC, but the volume continues to be too low to offset the drop in sales at Changan Ford.
The main Japanese automakers have reported growth in China.
Although the Chinese market has risen through the summer months, and this should give confidence about a strong end to the year, the shadow over potential growth in the final few months of the year is the high base of comparison last year. In the final months of 2016, the market witnessed a significant boost in sales, mainly for vehicles fitted with 1.6-litre or smaller engines. This was due to the 50% cut in the new-car purchase tax, which is generally 10% of the selling price of a new car. This discount was applicable to locally produced models in China with smaller engine sizes. The discount expired on 31 December 2016, but it pulled forward a number of purchases.
Meanwhile, the government continues to give a discount to small-engine models, but only a 25% cut in the new-car purchase tax. This is unlikely to be enough to offset the surge in volume sales in China in the final part of 2016. Therefore, we continue to have a conservative outlook for LV sales in the final part of the year.
IHS Markit forecasts now anticipate LV sales in China to rise 1% y/y to 27.85 million units; of this, PV sales are expected to rise 3.3% y/y to 23.8 million, while LCV sales will decline 10.7% y/y to 4.04 million units. It should be noted that within the LCV segment, declines are mainly from the minibus segment, while the pick-up truck segment is witnessing growth in China.
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