Auto market set for contraction
August sales in China down 3 percent on yearly basis despite 10.7 percent rise from July, report says
China’s auto market is expected to experience low single-digit growth as well as a possible contraction in the second half of this year, according to the China Auto Outlook which was released by Alix Partners and the American Chamber of Commerce (AmCham) in Shanghai.
The outlook comprises analysis of original equipment manufacturers (OEM) and auto suppliers who are members of AmCham Shanghai, and a survey of senior executives of leading domestic and international auto-part makers in China.
The report showed that signs of lower capacity utilization are emerging, a result of increased pricing competition when combined with flat sales. According to the China Association of Automobile Manufacturers, China’s auto sales in August (1.66 million units) were still down 3 percent on a yearly basis, despite a 10.7 percent rebound from the previous month. Industry experts said that it will be difficult to achieve the target of 3 percent growth, which was already revised from the original 7 percent in July.
The report also warned global OEMs that the China market may prove disappointing for them as their domestic rivals have started recapturing lost market share, reversing a fouryear trend. However, used-car sales are growing quickly, changing the market dynamics for OEMs, parts suppliers and dealers.
“To restore growth and profitability, Chinese auto dealers must consider several strategic actions to adapt to changes in the market. They need to improve customer experiences, strengthen aftermarket services and explore auto financing opportunities,” said Lian Hoon Lim, managing director of Alix Partners.
Automobile sales in China grew at a compound annual growth rate (CAGR) of 24 percent from 2002 to 2010 after the country joined the World Trade Organization in late 2001. China became the largest automobile market in the world in 2009 and has since held on to that position. Nearly every global automaker has a presence in China and the country’s vehicle population is projected to hit 270 million by 2020.
A considerable portion of the automobile population in the future is expected to be formed by vehicles that run on alternative energy sources. In 2012, the State Council set a goal of putting 500,000 newenergy cars on the road by the end of this 2015, and 5 million by 2020. To achieve this, the government is planning to establish a research and development system and industrial chain for e-cars within the next four years.
“Energy efficiency and new energy used in vehicles have been emphasized by the central government, owing to the awareness of environmental protection and the need for sustainable development,” said Zhao Fuquan, professor and director of the Automotive Strategy Research Institute at Tsinghua University.
According to statistics by the China Association of Automobile Manufacturers, a total of 21,303 new energy cars were manufactured and 18,054 were sold in August, thrice the amount in the same period last year. In May, the State Council had also unveiled Made in China 2025, a program aimed at upgrading the country’s manufacturing power over the next decade. It includes special funding and tax incentives in 10 industrial sectors, including new-energy vehicles.
“China’s increasing energy needs will increase the demand for vehicles powered by alternative fuels. Unacceptable air pollution in major cities will also lead to tighter emission standards,” said Jack Perkowski, founder and managing partner of JFP Holdings.