Although the large state-owned automakers with significant joint ventures continued to lead the Chinese market in terms of volume in February, growth rates are soaring for local brands.
IHS Markit Perspective:
- Significance: The large state-owned conglomerates continued to gain volume sales from their joint ventures (JVs) with international automakers in the Chinese market in February, with SAIC's JVs with VW and GM accounting for over 89% of its volume sales.
- Implications: Local brands are continuing to perform better than expected, with sales growth on the back of new products mainly in the SUV segment and at the expense of international brands.
- Outlook: The Chinese passenger-vehicle market is now more reliant on market forces and these continue to help local players gain traction in the country, with much of the expansion stemming from interior lower-tier cities.
China's vehicle market recorded sales of 1.94 million units in February, up 22.67% year on year (y/y), according to data from the China Association of Automobile Manufacturers (CAAM). On a year-to-date (YTD) sales totalled 4.46 million units, up 8.84% y/y. CAAM data are for the total market, including both passenger-vehicle (PV) and commercial-vehicle (CV) sales. CAAM data also only include wholesale delivery data for locally produced models (see China: 10 March 2017: PV sales jump 18.29% y/y in China during February, SUV sales up 40% – CAAM).
The main thrust in sales in February came from the month having significantly more working days than in 2016. The Chinese Lunar New Year festival fell in January rather than February, cutting working days in the first month of the year but adding them in February.
To gauge the overall growth trend IHS Markit has looked at total sales in the first two months, which have risen 8.84% y/y, signifying quite a positive turn despite the decline in January.
The large state-owned conglomerates continue to lead the market, although their growth rates are generally lower than those for automakers that mainly rely on in-house brand products. But state-owned auto groups' volumes remain significantly larger than those for the local automakers.
The SAIC Group, which has joint ventures (JVs) with Volkswagen (VW) and General Motors (GM), continues to lead the market with sales of 420,854 units in February (up 2.51% y/y) and YTD sales of 1.049 million (up just 1.32% y/y). The Dongfeng Motor Group, which has JVs with Groupe PSA, Honda, and Nissan posted February sales of 267,982 (up 28.84% y/y) with YTD sales of 601,053 (up 4.52% y/y). The FAW Group posted February wholesale sales of 228,790 (up 32.59% y/y) and YTD sales of 552,106 (up 21.16% y/y). The FAW Group has JVs with Mazda, Toyota, and Volkswagen. The Changan Group booked February sales of 225,751 (up 6.24% y/y) but YTD sales of 552,106 (down 2.09% y/y). Changan's JVs include one with Ford.
Meanwhile companies such as Geely and Great Wall have reported high growth rates. Geely sales are up 173% y/y in February and 107.37% y/y in the YTD period. Great Wall sales are up 30.68% in February and 12.56% in the YTD period.
SAIC Group has by far the largest overall volume, much of it from JVs. According to data released by the automaker, which are slightly higher than CAAM's as SAIC includes exports, the SAIC VW JV, the SAIC GM JV, and the three way SAIC-GM-Wuling (SGMW) JV together accounted for over 89.75% of its sales. But the fastest growth came from its own in-house products, which are up 100.41% y/y in the YTD period with 73,247 units sold.
The FAW Group has recorded solid growth and could soon disrupt the current rankings. Growth in the first two months stemmed from increased demand for its in-house Besturn products, said Susanna Huang, IHS Markit's light-vehicle sales forecast analyst. "The growth was mainly driven by demand for the Besturn X80 SUV and the Besturn B50 sedan," she said. Sales for the company's JV with Toyota also rose 19% y/y, but its in-house product sales jumped 31% y/y in the month. On a YTD basis, FAW-Toyota JV figures are down.
Meanwhile Changan Group has booked a decline in the YTD period, pulled down mainly by the double-digit slide in Ford sales in China. The Changan Ford JV in February posted a drop of 12% y/y and on a YTD basis a fall of 32% y/y.
Outlook and implications
Having lucrative JV partners once provided a huge boost for automakers in China. Today the situation has dramatically changed. The automakers that rely on their own in-house products are experiencing great success from producing models with the Chinese consumer in mind, at an affordable price point and riding a wave of patriotic buying. Companies such as Great Wall and Geely, which are leading the surge, aim to further gain in their domestic market by launching new brands this year. Both automakers have gained from developing products that meet the needs of local consumers as well as from working in partnership with top-tier international suppliers to develop technical features. Both have also employed a host of industry veterans to design the exterior and interior of their vehicles, as well as to develop specific powertrains. In fact, almost all Chinese in-house local brands have begun to show new models that reflect considerable international expertise. These new models are helping Chinese local brands continue to achieve rising sles. In the first two months of the year Chinese brands' share of sales in the country has exceeded predictions, prompting IHS Markit forecasters to update their expected growth trend this year.
CAAM data in February show 786,000 Chinese-brand passenger vehicles (PVs) were sold in February accounting for 48.2% of the PV market and marking a 22.9% y/y increase for Chinese brands. Chinese brand sedan sales totalled 173,000 units (up 34.8% y/y), accounting for 22.6% of the segment. In the SUV segment, Chinese brand sales hit 434,000 (up 49.3% y/y), making up 64.6% of the segment. In the YTD period, 1.76 million Chinese-brand PVs were sold (up 6.1% y/y), taking 45.8% of the segment.
IHS Markit data, which include retail sales as well as imports, show that Chinese brands accounted for 39% of the PV market in February, up from 37.2% in January. We have slightly upgraded our outlook for Chinese OEMs at the expense of foreign brands, said Wang Tao, IHS Markit's light-vehicle sales forecast analyst for China. "The remarkable performance of domestic OEMs is attributed to their successful product lineup with abundant SUV offerings," she said.
Overall we continue to expect total light-vehicle sales in China to reach 28.06 million units in 2017, up only 1.9% y/y on the bumper year in 2016 when purchase tax on small-engine vehicles was slashed. PV sales are expected to increase 2.4% y/y to 23.6 million units.
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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.