A Close Look at China Auto Sales Data

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Includes: BYDDF, F, FXI, HMC, NSANY, PGJ, TM
by: Susan Weerts

China auto sales surpassed the U.S. and ranked No. 1 in the first half of 2009. The sale data compiled by the China Association of Automobile Manufactures (CAAM) showed that the robust auto sales, starting in March 2009, were largely induced by the government stimulus plans.

Total car sales in China in the first half of the year, including commercial trucks, buses and cabooses, were 6,098,812 units, up 18% for a year ago. The total sales of the so called narrowly-defined cars(sedan, SUV and MPV) were 3,598,288 units, a 20% increase. The sales of cross-over passenger vehicles were 935,517 increased by 54%. The sales of commercial trucks and etc were 1,565,007, a 1% decrease.

The top ten auto manufacturers were: Faw-volkswagen, Shanghai Volkswagen, Shanghai GM, Beijing Hyundai, Dongfeng Nissan (OTCPK:NSANY), BYD (OTCPK:BYDDF), Canton Honda (NYSE:HMC), Faw Toyota (NYSE:TM), Chery and Changan Ford (NYSE:F), accounting for 65% of the total auto sales.

Monthly Auto Sales of Sedan, SUV and MPV: 2005-2009

One of major driving force behind the jumping sales is the tax incentives aimed at small vehicles. China government slashed the sale taxes on vehicles with displacement <1.6% by half to 5% until the end of 2009, which amounts to 14 billion yuan. About 53% of total auto sales in the first half of 2009 were small vehicles (displacement <1.6liter).

The separate statistics done by the State Information Center (SIC) confirmed that the bulk increase of auto sales was concentrated on small vehicles.

Furthermore, the data by SIC showed that the small range cars (prices belows $22,000) enjoyed robust growth while the luxury sedans (price above $37,000) slumped behind (-14.1% in the first half of 2009).

Despite the stellar performance of auto sales, the profit margins did not necessarily increase in line with the volume. The data by CAAM showed that the January-May accumulative revenue by the auto industry was 1.07 yuan, a 1.53% increase over a year ago while the total profit was 60.155 billion yuan, a 9.9% decline.

The potential problems to be faced in the second half of 2009 are as follows:

  1. 83% of car buyers today are the first-time buyers. Various government and sales incentives enticed the consumers to purchase a vehicle now. The surge in today's consumption is likely from the would-be purchases of next year. The current level of auto sales will not be sustainable once those incentives are expired.
  2. The car dealer can no longer offer a heavy discount. It was widely reported that the margins have been razor-thin in order to achieve the sale quotes in some dealers during the past 4 months. After 4 months of super sales, the car inventories are running low, 10 days for international brands and 15 days for domestic brands. Some dealerships even ran out of the cars entirely.
  3. China's “Cash for Clunkers” program failed to induce sizable second-time buyers. The second-time buyers account for 8% of total purchases. There is no financing in Chinese car sales. You have to pay cash in full. A one-time payment of 100,000 yuan eats a big chunk out of Chinese savings, even for the middle-class. This is likely to deter the average buyer from some other big-ticket consumption for the year. Current cash rebates were set at 3,000-6,000 yuan per trading-in. 83.2% of car owners indicated that they would only consider trading in their old cars if the rebate was raised to 15,000 yuan or above.

CAAW upped its sales forecast for 2009 to a total 1,100,000 earlier this month. Hence, the expectations for the auto sales in the second half of 2009 will be lower.

Disclosure: No position