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China’s auto sector was rejuvenated in April by posting 5% growth in sales to 1.62 million vehicles after recording a slack first quarter of the year. However, sales in the first four months of the year slid 1.3% to 6.4 million vehicles, owing to tighter credit policies and slower economic growth.

In January-March, auto sales fell 3.4% compared with an attractive 32% growth in 2010 due to stricter government regulations on new car registrations in order to control the traffic congestions and the same factors stated above.

According to China Association of Automobile Manufacturers (CAAM), passenger car sales rose 12.5% to 1.28 million vehicles during the month. Although the spike in sales growth during the month can be attributable to depressing comparable month of last year on the back of disruptions caused by the twin disaster in Japan on March 11, 2011, there is no way we can undermine the impact of other factors on sales.

In fact, some economists and auto trade associations believe that April sales clearly show a trend towards recovery as surveys indicated increasing manufacturing activity during the month. Further, they expect global demand for Chinese exports to improve.

Shanghai Automotive Industry Corporation (SAIC) – the top-automaker in China –registered a 12.6% rise in sales to 367,600 vehicles in April. Sales at its joint venture with General Motors Company (GM - Analyst Report) slipped 0.1% to 97,656 cars and with Volkswagen AG (VLKAY) increased 10.2% to 110,255 vehicles.

GM’s total sales in China grew 11.7% to 227,217 vehicles. Shanghai GM sales went down 2.2% to 94,101 units while SAIC-GM-Wuling sales went up 27 % to 127,362 units.

Toyota Motor Corp.’s (TM - Analyst Report) sales surged 68% to 82,000 vehicles in the country. The higher sales growth can be attributable to a weaker comparable month of 2011 following the Japan disaster.

Meanwhile, Ford Motor Co. (F - Analyst Report) recorded a 24% rise in sales to 54,881 units driven by strong demand for the new Ford Focus, which is the first of the 15 new vehicles the automaker plans to introduce in China by 2015.

Sales at Changan Ford Mazda Automobile Co.– a three-way joint venture with Ford, Chongqing Changan Automobile Co. and Mazda Motor Corp.– totaled 34,108 units in April, up significantly by 30% from April last year. Meanwhile, sales at Jiangling Motors Corp., Ford’s commercial vehicle joint venture, registered a 16% growth to 20,773 vehicles during the month.

In April, the U.S. saw sluggish 2.3% growth in light vehicle sales in April 2012 to 1.18 million units from 1.16 million units in the same month last year. Meanwhile, it rose 9.5% to seasonally adjusted annual rate (SAAR) of 14.42 million units from 13.17 million units in April 2011.

The sluggish growth can be attributable to lower sales recorded by GM (GM - Analyst Report) and Ford, and fewer selling days than April last year. But thanks to the fuel-efficient lineups and pent up demand that kept the auto sales recovery in the U.S. on track.

Auto sales in China had grown at a double-digit pace since 1999 except in 2008, when the global economic crisis crept in. In 2009, China overtook the U.S. as the biggest auto market in the world by sales volumes when the Beijing government introduced a stimulus package, including tax incentives for small cars with engine sizes of 1.6 liters or smaller.

However, the incentives were scrapped last year and the Beijing government imposed quotas on new car registrations in order to control traffic congestion. As a result, new car deliveries plummeted 56% to 403,500 units in 2011.

Nevertheless, China’s automotive industry outlook is promising in 2012. According to CAAM, car sales in 2012 is expected to grow by 8%–10% in the country, which is much higher than 2011 (5.2%). With a little support from the government to remove sales barriers, we believe the world’s largest auto market could reach the high end of expectations.

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