A few days back, the China Association of Automobile Manufacturing (CAAM) released the September China auto wholesale numbers which were pretty interesting to look at. Quite a bit of analysis is also possible from the declared shipment numbers, mainly with regard to demand for passenger vehicles. The numbers also gave an idea who is ruling the auto industry in China and who are the laggards. While the macro-environmental conditions in China are not too favorable to date, such impressive numbers do suggest that "all is shining" in the Chinese land with respect to the automotive sector. Let’s take a sneak peek into the numbers and try to make some analysis on the demand curve.
Mixed demand for passenger vehicles
September passenger vehicle sales remained positive, though it was slightly lower standing at 6.4% from what the consensus had expected. It appears that the reason behind this could probably be the readjustment of inventory by brands such as Volkswagen (VLKAY, Financial), Ford (F, Financial) and General Motors (GM, Financial) – all foreign brands ruling the Chinese soil.
Interestingly, the entire picture has been pretty distorted with Volkswagen and Ford which usually are the market leaders lagging behind in the September sales report, while the usual laggards such as GM and Chevrolet both saw sales grow positively over 20% in the month compared to their usual growth profile.
However, if we were to judge based on individual companies' points of view, the end-demand remains healthy enough to pull the sales up in the subsequent months, which makes me believe that this September weakness of Volkswagen and Ford is a one-time event which will fade off in the consecutive monthly reports.
SUVs on the sales high
China’s population has always expressed their love for the SUV vehicles of the various companies selling their models in the nation. Consistent with this long-lasting trend, SUV sales remained robust while sedan sales were soft in September this year. In total, the SUV sales jumped 26% versus flattish sales growth for sedans. This in turn reflects the strong demand for larger passenger vehicles that offer better space and comfort. This demand is likely to continue as new compact SUVs from different companies are expected to get launched in China by the second half of the year. But, the competition in the SUV segment is bound to get tougher in China with the new launches down the line.
Notably, domestic companies have started to create their own niche in the SUV space and the September results stand testimony to this statement. Domestic OEMs are gradually hitting the limelight in China and are posing to become a threat to foreign brands in the medium term as they are moving up the value-chain.
Overall, domestic passenger vehicle sales were up by 7% year-over-year, and have expanded their market share to 39%. Domestic SUVs such as Great Wall Motor Co.’s (GWLLF, Financial) H6 and Chery’s Tiggo are among the top selling models in the country. This has raised eyebrows on the sustainability of foreign players in the country, and this highlights that the foreign brands’ future are at risk unless they are able to add on extra features in the SUVs that appeals to the Chinese masses.
Final word
China remains a major growth engine than the U.S. and Europe and the slowdown noticed in the September sales is expected to fade off as macroeconomic factors show some signs of recovery. As soon as the Chinese economy shows revival signals, foreign companies that are currently running at about two months of inventory will see better days in this emerging market which is the second largest auto hub after the U.S.
