China’s car sales showed signs of recovery in June, with retail sales of sedans, sport utility vehicles, minivans and multipurpose vehicles rising 4.9% to 1.8m units from a year earlier, according to the China Passenger Car Association. This makes the first increase since May 2018 in the world’s largest automotive market. The difficult times for the Chinese automotive market began in 2018 when it saw the first sales decline in the past 20 years as a slowing economy and tit-for-tat import tariffs between USA and China affected consumer sentiment.
Industry experts were optimistic that the market will return to growth in the second half of the year due to government support. So, are the June figures the first indicator that the market is rebounding? Not necessarily. While the figures do offer some hope for auto manufacturers, they are heavily influenced by car dealers’ incentives ahead of the new emissions rules. According to the new emissions rules, starting from July 1, vehicles sold in China should meet the State VI standard, which is equivalent to the Euro VI standard. A total of 18 provinces and regions, which together account for most of China’s car sales, required vehicles to meet the new emission standards. As a response to this deadline, dealers reportedly slashed prices by as much as 50% in recent weeks, to clear their inventory of cars that do not meet new stricter emission standards before new emissions rules kicked in. So, overall, a sustained recovery still seems far from certain.
The unprecedented slide in the past year has hit local brands particularly hard, although market leaders and global players have also seen their sales decline. According to the statistical analysis of the Chinese Association of Automobile Manufacturers, sales of FAW-Volkswagen, GAC Honda and Geely Holdings showed a rapid decline in May 2019 compared with the previous month, while SAIC Volkswagen declined slightly. China is the most important individual market for the German auto-manufacturers Daimler, Volkswagen and BMW and the market’s loss of momentum is putting brakes on their sales. But not all German auto manufacturers have been equally affected. While Volkswagen sees its sales wane in China, BMW and Mercedes-Benz are still performing relatively well as Chinese consumers continue to show high preference for the premium models of these two German automakers. The slowdown is also painful for U.S. automakers operating in China. Ford, for instance, has seen its sales in China drop by 36% in Q1 2019. To stem plummeting sales, it recently announced it will launch 30 new models by 2025 in China.
With little relief in sight, carmakers are increasingly counting on Chinese government tax cuts to stimulate demand and help the market rebound from its worst slump in 20 years. In March this year, the Chinese government announced plans to cut a total of CNY2 trillion ($298bn) in duties and fees, including value-added taxes, to help boost its economy. The tax reductions could be big but the unanswered question that remains and that keeps auto makers on their toes is when this will happen.
Source: Transport Intelligence, July 09, 2019
Author: Violeta Keckarovska
