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China still offers best potential for automakers despite golden days gone
By Macquarie Equities Research |
July 4, 2012, Wednesday
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Print Edition
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MACQUARIE'S global auto team recently spent a week in China meeting international and domestic automakers and dealers, as well as government and industry officials.
Reflecting the mixed data points coming out of China recently, we heard of a variety of trends that varied by original equipment manufacturer (OEM), region and type of vehicle.
Areas of strength include luxury cars and SUVs, while competition is intense in the mid-size sedan and southern coastal region. We observed a number of data points that suggested the market is subdued but not alarmingly weak.
We believe China offers among the best growth potential in the world for automakers that get it right even if the days of easy growth are over.
For the most part, the dealers we met with all agreed that inventories were up, mainly ahead of summer plant closures. Whereas BMW and Great Wall suggested inventory was at normal levels, a Kia dealer in Beijing indicated it had jumped in the past month.
Nissan, Honda and Volkswagen local management were happy with inventory levels that they suggested were less than two months. Geely noted, however, that its inventory was around two months and could rise to three months.
While all the industry participants suggested it was a very competitive market, most noted that intense pressure was mainly in select vehicle types, including high-end premium and mid-size cars. Incentives appear to be coming from dealers, not the OEMs, but the latter may end up offering higher rebates.
Meetings with a BMW dealer in Beijing and Audi sales management confirmed our view that luxury is the most robust area of growth, with luxury car sales up 27 percent year on year through May. The only OEM-supported discounts have been for end-of-product-cycle vehicles like the BMW 3 series and the imported high-end premium vehicles.
SUV sales remain strong, up 27 percent year on year through May. The Great Wall dealer noted he could have sold more H6 SUVs if stock had been available.
With the days of easy money behind them, some dealers are struggling with the need to develop revenue streams other than commissions on new car sales. Those dealers who can fill out their profit streams with financing, used cars and servicing will prosper. Dealers who focus just on new car sales will continue to find it hard to make money.
While unit growth rates will be lower, China continues to offer solid expansion prospects in light of the still low penetration of only 70 vehicles/1,000 people. We believe the leading international brands such as VW, BMW, General Motors, Nissan and Hyundai remain the best-placed to gain share, while Toyota and Honda are both making an effort to reassert their brands. Among the local OEMs, we have the greatest confidence in Great Wall's ability to grow market share.
The article was the abstract of a Macquarie Equities Research report dated June 28. The opinions expressed are their own.
Reflecting the mixed data points coming out of China recently, we heard of a variety of trends that varied by original equipment manufacturer (OEM), region and type of vehicle.
Areas of strength include luxury cars and SUVs, while competition is intense in the mid-size sedan and southern coastal region. We observed a number of data points that suggested the market is subdued but not alarmingly weak.
We believe China offers among the best growth potential in the world for automakers that get it right even if the days of easy growth are over.
For the most part, the dealers we met with all agreed that inventories were up, mainly ahead of summer plant closures. Whereas BMW and Great Wall suggested inventory was at normal levels, a Kia dealer in Beijing indicated it had jumped in the past month.
Nissan, Honda and Volkswagen local management were happy with inventory levels that they suggested were less than two months. Geely noted, however, that its inventory was around two months and could rise to three months.
While all the industry participants suggested it was a very competitive market, most noted that intense pressure was mainly in select vehicle types, including high-end premium and mid-size cars. Incentives appear to be coming from dealers, not the OEMs, but the latter may end up offering higher rebates.
Meetings with a BMW dealer in Beijing and Audi sales management confirmed our view that luxury is the most robust area of growth, with luxury car sales up 27 percent year on year through May. The only OEM-supported discounts have been for end-of-product-cycle vehicles like the BMW 3 series and the imported high-end premium vehicles.
SUV sales remain strong, up 27 percent year on year through May. The Great Wall dealer noted he could have sold more H6 SUVs if stock had been available.
With the days of easy money behind them, some dealers are struggling with the need to develop revenue streams other than commissions on new car sales. Those dealers who can fill out their profit streams with financing, used cars and servicing will prosper. Dealers who focus just on new car sales will continue to find it hard to make money.
While unit growth rates will be lower, China continues to offer solid expansion prospects in light of the still low penetration of only 70 vehicles/1,000 people. We believe the leading international brands such as VW, BMW, General Motors, Nissan and Hyundai remain the best-placed to gain share, while Toyota and Honda are both making an effort to reassert their brands. Among the local OEMs, we have the greatest confidence in Great Wall's ability to grow market share.
The article was the abstract of a Macquarie Equities Research report dated June 28. The opinions expressed are their own.
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