September to October has always been the yearly high season for China’s consumption market, with the market calling the period “Golden Sep and Silver Oct”.
导语September to October has always been the yearly high season for China’s consumption market, with the market calling the period “Golden Sep and Silver Oct”.
Last Friday (Oct. 12), the China Association of Automobile Manufacturers (CAAM) released statistics on Chinese automobile production and sales in September and the first nine months of 2018. Unsurprisingly, compared with the same period of the previous year, the production and sales of automobiles in September dropped significantly, and declined for three consecutive months since July.
Although the production and sales of Geely, Chery, Great Wall, BYD, FAW-Volkswagen and other auto manufacturers performed better in September than August, it still fell 11.6% year-on-year. Judging from the data in the past two weeks, the situation in October is not optimistic. This year's "Golden Sept and Silver Oct" is more likely to go down the pan.
Declined 3 consecutive months in the auto market
According to statistics from CAAM, the production and sales of automobiles in September were 2,356,000 and 2,394,000 units respectively, up 17.8% and 13.8% than that of previous month, but down 11.7% and 11.6% year-on-year, and the current period inventory was 101.6%.
From January to September 2018, the production and sales of automobiles were both 20,491,000 units, up 0.9% and 1.5% year-on-year. The growth fell 1.9 and 2 percentage points respectively compared with the previous eight months. The sales growth rate continued to come down, the overall performance was lower than the forecast at the start of this year.
Currently, the Chinese passenger car sales account for more than 84% of the total. According to the statistics, the production and sales of passenger cars in September were 2,025,000 and 2,060,000, an increase of 18.7% and 15.1% month-on-month, down 11.9% and 12% year-on-year, and the production and sales fell for three consecutive months, which has never been seen for many years.
The reason for the slight growth in the first nine months of this year was mainly due to the strong performance of the auto market in the first half of the year, which partially offset the decline in the Q3, resulting in a 1.5% year-on-year increase in sales in the first nine months.
Statistics from CAAM are about wholesale which cannot fully reflect the real situation of the market. According to the retail sales data based on compulsory auto liability insurance which was sorted by the relevant departments, the wholesale volume in the first eight months of 2018 was 1.6 million more than that of the retail sales. According to retail data, the Chinese auto market has experienced negative growth in the first nine months of this year.
Three causes for the sluggish auto market
CAAM believed that the lack of consumer confidence, the plunge in the stock market, and the China-US trade friction are the three major causes for the continued sluggish Chinese auto market.
The Chinese auto market in the Q3 of 2018 was a bit like that in the second half of 2008. At that time, due to lack of consumer confidence and the impact of the international financial crisis, the Chinese auto market continued to be sluggish. Until the beginning of 2009, China introduced the auto industry revitalization plan, which reversed the auto industry's decline by halving the car purchase tax and encouraging trade-in and car-to-home.
China is the world's largest automobile consumption market. Almost all auto giants in the world have joint ventures in China, and the largest market for many multinational auto companies is in China. The trend of the Chinese market determines the movement of multinational auto giants.
The sluggish Chinese market made multinational auto companies nervous, because they rely on the Chinese market for global growth. Volkswagen said its Volkswagen brand sales in China fell 10% in September, dragging down Volkswagen brand global sales by 20%.
Jaguar Land Rover (JLR) announced that its largest plant in the UK will be discontinued for two weeks due to weak demand. Affected by this, the share price of Tata Motors who wholly owns JLR, dropped 15.7% in the Mumbai market. JLR blamed the discontinue of production in England to a significant drop in sales in the Chinese market.
General Motors (GM), the largest auto company in the US, announced that its sales of the company and joint ventures in China were deceased by 14.9% year-on-year in September, down 2.5% in the first nine months compared with the same period of the last year. China is the largest market for GM, and its decline has seriously affected GM's global performance.
Ford's sales in China fell sharply this year, down 30% in the first nine months. Affected by the sluggish Chinese market, Ford began layoffs.
Negative growth may be throughout the year
Due to too many uncertainties, the three major causes for the downturn in the Chinese auto market are difficult to eliminate in the short term. If there are no major policies, the market situation in the Q4 won’t be optimistic.
According to the statistics from CAAM, sales in the last three months of 2017 were 2,704,000, 2,958,000 and 3,060,000 units respectively. A total of 8,722,000 units were sold in the Q4, with a monthly average of 2,907,000 units. In the first nine months of this year, the monthly average sales was only 2,277,000 units.
Due to the high sales base in the last Q4, it is basically impossible to sell more than last year in the current situation. Moreover, if the release of incentives policies for car consumption are too late, the pull of the annual sales is also limited.
Nomura Securities, a Japan-based financial services group with an integrated global network spanning over 30 countries. estimates the Q4 passenger car sales in China to fall by 7.5% year-on-year, resulting in a 1.6% decline in sales for the full year. This will be the first decline in the annual sales of the Chinese passenger car market since 1990.
China has been the world's largest auto production country and the largest new car market for nine consecutive years, with car ownership reached more than 200 million units. In 2017, China’s car sales were close to 29 million. With such a large base, it is difficult to grow even larger. The United States, with world’s largest car ownership, once was the world's largest new car market. The annual peak of new car sales in the United States is 17 million.
Some analysts believed that under such a high base, a decline in annual sales is also normal. However, it must be noted that the rigid demand for Chinese automobile consumption will exist for a long time.
A long-term rigid demand of Chinese automobile consumption
The Traffic Management Bureau of the Ministry of Public Security of the PRC announced that as of the end of June 2018, the car ownership in the country reached 229 million units, including 180 million private cars. Some analysts believed that, according to the current growth rate, China's car ownership will exceed 250 million units by 2020. In a few years, China will surpass the United States to become the country with the world's largest car ownership.
With the rapid increase in China's car ownership, the peak of car changing has arrived, providing a rich source of cars for the used car market.
In the first nine months of this year, the number of used cars in China reached more than 9 million and will reach 12 million in the whole year. The healthy development of the used car market has expanded the scale of car transactions and made room for new cars.
With the rising of the car ownership, the annual car scrappage is also considerable. According to international practice, the number of scrapped cars per year accounts for about 6% of car ownership. The sharp increase in domestic car ownership has been concentrated in the past decade, and a large number of cars are reaching the end of their life cycle.
According to the estimation of relevant departments, the number of end-of-life vehicles (ELVs) in the country will reach 9 million in 2018, and will exceed 10 million in the next few years.
If 10 million vehicles are scrapped each year, 12 million vehicles flow into the used car market, and with the addition of millions of new cars, the total domestic new car sales will exceed 27 million units per year. With the increasing export of automobiles, the annual production and sales volume of Chinese automobiles is likely to remain at around 30 million for a long time.
Despite the temporary difficulties, the rigid demand for Chinese cars will exist for a long time, in the long run, and the prospects are still bright.
Zhang Yi
