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Same-Day Analysis: Passenger vehicle sales increase 9.4% in China during January, IHS forecasts rise of just 5% in 2016

17 February 2016 IHS Markit Automotive Expert

Despite the passenger vehicle sales growth of 9.4% witnessed in China during January, the rate of growth is far lower than the double-digit percentage growth witnessed in the final three months of 2015.

IHS Automotive Perspective

  • Significance
    The Chinese government's incentive to boost sales of small-engine vehicles led to a surge in sales in the final few months of 2015, when growth hit rates of over 15%; however, January 2016 has witnessed a lower growth rate of 9.4% and this may reflect slower growth anticipated for the year ahead.
  • Implications
    China has 40 cities with car ownership of 1 million units, while there are 11 top-tier cities with ownership of over 2 million vehicles. Average vehicle density across China's cities is 31 cars per 100 households, but in the top-tier cities the level can be as high as 60 cars per 100 households. It is this huge disparity that offers potential growth in car sales in China, as the lower-tier cities are likely to be the bright spots in the market.
  • Outlook
    IHS Automotive forecasts an annual growth rate of 5% in 2016 for passenger vehicle sales in China, but should new incentives be introduced to the market, this would be revised.

The Chinese vehicle market is estimated to have grown in the first month of 2016, but at a far slower growth rate than witnessed in the final few months of 2015. Sales of light vehicles (LVs) grew by 6.4% year on year (y/y) in January in China, with total sales reaching 2.5 million units, IHS Automotive data show. The growth of the overall market was on the basis of a 9.4% y/y growth in sales of passenger vehicles (PV) in China. Meanwhile, sales of light commercial vehicles (LCVs) declined 6.9% y/y to 410,000 units. IHS Automotive defines PVs to include imports and exclude exports.

Demand for sport utility vehicles (SUVs) grew 49% y/y in China during January, with a total of 850,000 units sold in the month. Sedan sales declined 9.1% y/y to 1.13 million units, while multi-purpose vehicle (MPV) sales hit 119,000 units, up 33% y/y.

Outlook and implications

Despite the overall growth witnessed in the Chinese vehicle market in January, the month saw far slower growth than the double-digit percentage growth rates recorded in October, November, and December 2015, when passenger vehicle (PV) sales rose 16.4%, 25.4%, and 19.8% y/y, respectively. Consequently, the 9.8% y/y growth rate of PV sales in January indicates slowing growth.

In October 2015, the Chinese government introduced a cut in the purchase tax for small-engine vehicles, offering a 5% new-car purchase tax, as opposed to a 10% rate, for cars with engines of 1.6 litres and smaller. This is one of the main reasons behind the sudden boost in sales in the Chinese new-car market in the final three months of 2015. However, that impetus seems to have slowed and January's growth reflects a less dramatic increase in sales, despite it being the month just ahead of the lunar New Year of the Monkey, which fell on 8 February. Chinese consumers often choose to buy vehicles in advance of the New Year, which should be considered one of the contributing factors to the 9.8% y/y growth rate in the month. However, more worryingly is whether, without the bonus of a big festival to attract buyers, the overall market growth will stall again.

IHS Automotive currently forecasts a 5% y/y growth rate for PV sales in China this year, with total sales in 2016 expected to hit 20.7 million units. However, with growth forecasted to be slowing, new incentives and dealer offers may be accelerated and the promotion of these may help to lift the overall growth of the market. If such incentives are introduced, we will reassess our sales forecast.

Generally, vehicle sales in the months of January and February are slower than in the final month of the preceding year when dealers are pushed by automakers to meet their annual sales targets. This has a knock-on effect in the market, with many vehicles officially sold in December, though they may be delivered in the following month. The number of days in the months is also a factor taken into consideration, with the Chinese New Year generally celebrated for a week-long period with most of the country at a standstill. Therefore, this often means January and February have slower sales growth than other months of the year.

In 2015, it was the summer doldrums which pushed the government to bring in the cut in the new-car purchase tax for small-engine vehicles. It is generally towards the middle of the year when major incentives begin to be discussed if overall sales are slow.

However, the bright spots in the market currently belong mainly to the local Chinese brands, which are gaining loyal consumers in the lower-tier cities of China. Sales of Chinese brand passenger vehicles increased 25.4% y/y in January to account for a total of around 750,000 units, helped by a host of Chinese brand SUVs. This means that domestic brands now control around 35.7% of the PV market in China. Japanese automakers have also reported growth in sales in the month, mainly on the back of strong SUV sales. However, South Korean automakers Hyundai and Kia posted declines in January mainly due to reduced demand for their brands' sedans. Ford sales in China also rose in January on the back of SUVs. Sales of Ford's SUV line-up - the EcoSport, Kuga, Edge, Explorer, and Everest - were up 75% y/y to 37,411 vehicles. General Motors also reported SUVs as being one of the major factors for growth in the month, the Buick Envision and the Baojun 560 being the strongest-selling models. However, despite the overall market demand for sedans declining, it remains the largest single segment in China. Additionally, the sheer volume of this segment will continue to attract OEMs to enter it.

The Chinese authorities have begun voicing concern over slower growth rates in the vehicle market in the country. The China Automobile Dealers' Association (CADA) has warned that January's sales are indeed anticipated to be slower than that of the final month of 2015. According to the association, consumer demand in December was up 23% month on month from November 2015. In December 2015, transactions at dealerships rose 50.3%, almost double the 26.3% witnessed in November. Xiao Zhengshan, the secretary-general of CADA, has been quoted saying that the government policy which halved the vehicle purchase tax to 5% for cars with engines of 1.6 litres and smaller is the main reason for the strong December sales performance, but warned that January and February are likely to witness slower sales growth. The association has issued a warning to dealers to avoid stocking up inventories.

Changes in government policies now mean that dealers have more authority over the models they choose to sell in their dealerships and are less reliant on pressure from OEMs. "This year, many automakers will start changing their policies. Now it will be up to auto dealers to tell automakers what models and how many they want," said Lang Xuehong, the association's vice-secretary-general. "In other words, auto dealers' performances will be based on their estimates of the market. It will be a new challenge for auto dealers."

Meanwhile, across China ownership of cars has hit 172 million, the Chinese Ministry of Public Security has stated. This takes into account the 23.85 million new cars registered in China in 2015. Of the total vehicles owned, 136 million are "small sized cars", of which 91.5% are privately owned. The penetration rate however varies across China's cities, with the top-tier cities such as Beijing having a higher vehicle density. However, across China, for every 100 households there are 31 private cars. Cities such as Beijing and Shenzhen have a higher ownership ratio of around 60 cars per 100 households. According to the ministry's statement, there are 40 cities that have car ownership of more than 1 million, and in 11 cities, including Beijing, Shanghai, Shenzhen, and Tianjin, car ownership exceeds 2 million. Additionally, with about 33.75 million new drivers in 2015, China now has more than 280 million licensed car drivers, the statement said.

The high disparity between vehicle ownership in the advanced top-tier cities in China and the rest of the country is where the high sales growth bubbles are expected to take place. Therefore, despite the overall slower sales growth rate anticipated, the market remains an enormously important market for OEMs.

The government has also announced that it may introduce more policies to strengthen the vehicle market, which is considered a pillar industry in China. A report from state media issued in January said, "The central government started to stress 'supply-side reform' in December, as a turning point in macro-policy. The move comes as China steers toward a growth model based on domestic demand, innovation and the private sector instead of trade and credit expansion. The country vowed to 'add new supply, create new consumption and form new growth momentum' through new ideas in institutions, technology and products."

About this article

The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.


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