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Pent-up demand sheds ray of sunshine on auto sales
By Lu Nengneng |
May 21, 2012, Monday
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Print Edition
Print Edition
IN the shadows of China's economic slowdown, there are signs of the green shoots in the auto market, thanks to huge pent-up demand.
Sales of passenger cars and commercial vehicles in April rose 5.2 percent from a year earlier to 1.6 million units. That followed sales growth of 1 percent in March.
The two consecutive months of rebounding sales came after the once-flourishing auto market hit rock bottom in the first quarter with a 2 percent slump from a year earlier. The latest news buoyed the industry.
"Expectations are positive," said Rao Da, secretary-general of the Joint Advisory Committee of China Passenger Car Market. "China's auto market is on a track towards recovery."
Rao said pent-up demand was cut loose in the last two months after the central bank reduced the reserve requirement on banks, signaling an easing of tighter monetary policy. Car production, a leading indicator in China's economy, rose 5.7 percent in April from a year earlier.
No one doubts that China's decelerating economic growth in the past five quarters has scarred the auto market. In the first quarter, more than 60 percent of the listed auto companies in China posted declines in revenues and profit, including three of the four biggest carmakers. One of them, FAW, suffered losses in excess of 40 million yuan (US$6.3 million).
Independent auto analyst Zhong Shi said a general cooling in the economy was only a partial reason for FAW's disappointing results. He said the company's models just weren't attractive enough as higher fuel and food prices made buyers more wary and prudent.
In a nationwide market where the overall vehicle penetration rate is still only about 65 cars per 1,000 population - way below the average in developed markets - there is still significant room for growth, particularly in the western part of China and lower-tier cities, according to Andrew Thomson, co-head of automotive at audit, tax, and advisory firm KPMG China.
"The craze of car worship in markets with low vehicle penetration rates showed no signs of weakening in the past few months," said Ye Sheng, auto research director at market research company IPSOS. "The record high fuel prices might have delayed car purchases but didn't dent the decision to buy.?
But Thomson advised caution in forecasting the auto market trend.
"Market participants probably need to get used to a 'new future' of single-digit growth rates, rather than the incentive-fueled, high double-digit rates we have seen over the last couple of years," he said of car sales.
A 6 billion yuan government subsidy program was unveiled last week to fund purchases of automobiles with engines of 1.6 liters or less.
But when it comes to stimulus for the auto industry, the latest effort pales in comparison with the former 10 billion yuan auto-purchasing subsidy program that ended last year, according to Shen Zhengyuan, an analyst at China Investment Securities Co.
Sales of passenger cars and commercial vehicles in April rose 5.2 percent from a year earlier to 1.6 million units. That followed sales growth of 1 percent in March.
The two consecutive months of rebounding sales came after the once-flourishing auto market hit rock bottom in the first quarter with a 2 percent slump from a year earlier. The latest news buoyed the industry.
"Expectations are positive," said Rao Da, secretary-general of the Joint Advisory Committee of China Passenger Car Market. "China's auto market is on a track towards recovery."
Rao said pent-up demand was cut loose in the last two months after the central bank reduced the reserve requirement on banks, signaling an easing of tighter monetary policy. Car production, a leading indicator in China's economy, rose 5.7 percent in April from a year earlier.
No one doubts that China's decelerating economic growth in the past five quarters has scarred the auto market. In the first quarter, more than 60 percent of the listed auto companies in China posted declines in revenues and profit, including three of the four biggest carmakers. One of them, FAW, suffered losses in excess of 40 million yuan (US$6.3 million).
Independent auto analyst Zhong Shi said a general cooling in the economy was only a partial reason for FAW's disappointing results. He said the company's models just weren't attractive enough as higher fuel and food prices made buyers more wary and prudent.
In a nationwide market where the overall vehicle penetration rate is still only about 65 cars per 1,000 population - way below the average in developed markets - there is still significant room for growth, particularly in the western part of China and lower-tier cities, according to Andrew Thomson, co-head of automotive at audit, tax, and advisory firm KPMG China.
"The craze of car worship in markets with low vehicle penetration rates showed no signs of weakening in the past few months," said Ye Sheng, auto research director at market research company IPSOS. "The record high fuel prices might have delayed car purchases but didn't dent the decision to buy.?
But Thomson advised caution in forecasting the auto market trend.
"Market participants probably need to get used to a 'new future' of single-digit growth rates, rather than the incentive-fueled, high double-digit rates we have seen over the last couple of years," he said of car sales.
A 6 billion yuan government subsidy program was unveiled last week to fund purchases of automobiles with engines of 1.6 liters or less.
But when it comes to stimulus for the auto industry, the latest effort pales in comparison with the former 10 billion yuan auto-purchasing subsidy program that ended last year, according to Shen Zhengyuan, an analyst at China Investment Securities Co.
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