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Chinese auto market shows potential beyond sales slowdown
By Fitch Ratings |
May 3, 2012, Thursday
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Print Edition
Print Edition
THE Chinese auto market has significant growth potential over the medium to long term, notwithstanding negative unit sales growth in the first quarter of this year. Competition is likely to intensify from additional capacity scheduled to come on stream throughout 2012, which could clearly mean greater pricing pressure. The Chinese market remains a key focus for the Korean and Japanese automakers, which are continuing to expand their operations despite the current slowdown.
Total passenger car sales growth in China came down rapidly in 2011, to 5 percent from 33 percent in 2010. Two main reasons were the introduction of various government tightening measures to cool down the economy, and a significantly higher base after 2010's record growth. Auto sales actually fell during the first quarter of 2012 - by 2 percent year on year - versus a 9 percent growth in the first quarter of 2011, clearly illustrating that the industry is undergoing a difficult period consistent with decelerating economic growth in China.
Nevertheless, most global auto manufacturers continue to be attracted to China due to the sheer size of the market - a record high 14.5 million passenger cars were sold in 2011 - and the high likelihood that this will continue rising over the medium to long term. Economic growth is still comparatively high, with Fitch expecting an 8 percent pace in 2012 and 2013. The auto penetration rate is low in China, with only 5 out of 100 people owning a car compared with 30-50 in developed markets. Other positive factors for the sector's outlook include rising urbanization and a steady increase in household income - especially in the inland cities.
We believe that competition will heat up in the short term, especially with the local low-end manufacturers expanding into the mass mid-market segment.
Notably, many of the global joint-venture auto manufacturers are emphasizing their focus on China's luxury segment at this year's Beijing International Automotive Exhibition. The high-end market has grown at a faster annual clip over 2006-2011, at 55 percent compared with the mid-market's 23 percent. We expect the luxury segment to maintain growth of over 20 percent in 2012 and 2013, due to low penetration of luxury vehicles and an expanding upper-middle class.
We expect the Japanese and Korean automakers to continue pursuing the Chinese market as part of their expansion strategies. For example, Hyundai Motor will commence operations at its third plant in China during the second half of 2012. Japanese automakers also have aggressive plans to boost capacity and enhance their new model line-ups.
The article originally appeared on the Fitch Wire credit market commentary page. It can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Total passenger car sales growth in China came down rapidly in 2011, to 5 percent from 33 percent in 2010. Two main reasons were the introduction of various government tightening measures to cool down the economy, and a significantly higher base after 2010's record growth. Auto sales actually fell during the first quarter of 2012 - by 2 percent year on year - versus a 9 percent growth in the first quarter of 2011, clearly illustrating that the industry is undergoing a difficult period consistent with decelerating economic growth in China.
Nevertheless, most global auto manufacturers continue to be attracted to China due to the sheer size of the market - a record high 14.5 million passenger cars were sold in 2011 - and the high likelihood that this will continue rising over the medium to long term. Economic growth is still comparatively high, with Fitch expecting an 8 percent pace in 2012 and 2013. The auto penetration rate is low in China, with only 5 out of 100 people owning a car compared with 30-50 in developed markets. Other positive factors for the sector's outlook include rising urbanization and a steady increase in household income - especially in the inland cities.
We believe that competition will heat up in the short term, especially with the local low-end manufacturers expanding into the mass mid-market segment.
Notably, many of the global joint-venture auto manufacturers are emphasizing their focus on China's luxury segment at this year's Beijing International Automotive Exhibition. The high-end market has grown at a faster annual clip over 2006-2011, at 55 percent compared with the mid-market's 23 percent. We expect the luxury segment to maintain growth of over 20 percent in 2012 and 2013, due to low penetration of luxury vehicles and an expanding upper-middle class.
We expect the Japanese and Korean automakers to continue pursuing the Chinese market as part of their expansion strategies. For example, Hyundai Motor will commence operations at its third plant in China during the second half of 2012. Japanese automakers also have aggressive plans to boost capacity and enhance their new model line-ups.
The article originally appeared on the Fitch Wire credit market commentary page. It can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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