In 2007, automobile sales witnessed a satisfactory year in China. After the depression in 2005, the automobile market steadily develops with a prospective tendency: the sales of medium and high grade passenger cars and urban SUV will maintain high growth; commercial passenger car industry will also steadily develop; however, the general growth rate of commercial freight vehicles will decrease, and the opportunity lies in products upgrading and export.
Affecting and supporting factors in 2008
In 2008, automobile industry will face affecting factors including energy-saving environmental policy, levying of petroleum tax, unification of domestic and foreign enterprise taxes, high-price petroleum and development of new energy etc. Thus automobile sub-industries will face new opportunities and challenges.
Formation of a new consumer group and the obvious consumption upgrade trend are the backgrounds for a steadily developing passenger cars market, while GDP, fix asset investments and new rural construction factors are the supporting factors for commercial freight vehicles stable growth. Demographic dividend, tourism boom and expressway expansion are the forces to maintain constant development of commercial passenger cars. In the automobile industry, there are passenger cars as discretionary consumer products, as well as commercial vehicles with capital goods purpose. Each branch industries will undergo a development stage where opportunity and challenge co-exist, meanwhile, the leading enterprises of automobile parts will also have enormous opportunities. Therefore upstream leading automobile parts merchants in the automobile industry chain will embrace a high-speed development stage.
Presently the average per-capita auto number is three cars per a hundred persons in China. According to the internationally accepted automobile popularizing stage division, China is in the “early stage of motorization”. Nevertheless, due to distinctive urban-rural dual structure in China and the different development level between urban and suburban districts, per-capita auto number is twenty cars per hundred persons in tier one cities, where the automobile consumption is in a “stage of motorization”. It is estimated that most cities of China will remain in this stage for a long period.
As of October 2007, automobile sales reached 7,150,000 cars in China, a year-on-year accumulated increase of 24%. Among this number, passenger cars sales were 5,079,400, with a year-on-year accumulated increase of 23.75%, while commercial vehicles sales were 2,070,000, with a year-on-year accumulated increase of 25.14%. Firstly, let’s look at the short-term sales trend of various car types.
Since 2002, annual sales of passenger cars have cross the million line in China, achieving a high-speed growth for five years. At the end of 2007, it is estimated that sales will reach six million cars. Considering great economic difference among regions in China, the main development engine for the automobile industry is the existing customer’s replacement demand and new user’s first purchasing demand.
Brand competition between passenger cars is fierce. Currently passenger cars brands total about 340 in China, and the annual average sales per brand is 17,000 this year, a year-on-year decrease of 45% for passenger cars brands. The reason is that passenger cars market exhibits brand disorder and excessive small enterprises, which is also related to the consumption feature of passenger cars in China.
Passenger cars, as the consumption segment of automobile industry, have an incomparable market potential to the buses and freight vehicles. In the car segment, we think high-grade brand sales will be stable, while competition in medium-grade market will be vigorous. Fashionable style and good dynamic performance cars will be warmly received by new-generation automobile consumers, but the spring for low-grade economic car still needs time.
Replacement demand-driven consumers are less sensitive to the price and petroleum cost, instead, they more focus on the maturity and performance of the brands. Therefore, this demand may be for medium and high displacement passenger cars. The consumer group for first cars is aged below 30, favouring fashionable and dynamic style, so it is estimated that urban SUVs and medium-grade cars will be the major consumption.
SUVs and MPVs
Improved leisure style SUVs will continue the high-speed growth, which is little affected by petroleum price and tax factors etc. According to the mature automobile market data, the market share of SUVs continues to increase. As the automobile demand releasing and purchasing ability gradually growing in second and third tier cities, SUVs will have new growth spots.
A MPV combines together household and business purposes, which blurs the line between discretionary consumer products and capital goods. In this year, the growth rate of MPVs will exceed the average growth rate of passenger cars industry, but we consider its potential is less than SUVs market. Currently some automobile enterprises invest in MPVs, so we believe family style MPVs will occupy some market share of family passenger cars.
In segmentation of commercial vehicles, the trend to getting “heavy” is obvious. Heavy vehicles, coach and heavy tonnage with semi trailers noticeably increased faster than other segments of commercial vehicles. Among commercial vehicles, freight vehicles cyclicality is relatively long, and the bus industry steadily develops with sales growth almost maintaining 20% per annum.
Commercial freight vehicles shall benefit from future factors such as GDP of China growing at above 10%, continuing high growth in fixed asset investments, further expansion of weight-based charges, increasing freight vehicle demand from new rural construction among towns and villages, and export market opening for leading enterprises. In general, commercial vehicles will maintain about 10% growth, due to booming of heavy vehicles industry this year. but total sales growth next year will be less than current year on pcp. Sales structure of heavy vehicles will be further changed, with bigger proportion for high power and large capacity heavy vehicles, and export of high-grade trucks is estimated to expand further. In future, two growth spots for the truck industry will be large capacity, energy-saving heavy trucks and export market.
Bus industry maintains constant growth. Due to the large population of China, and road passenger transportation volume increasing, replacement of sightseeing buses has become one of driving forces for bus industry development. Similar to truck industry, buses as a segment of commercial vehicles are popular among foreign importers due to its high price/performance, and now mainly exporting to regions such as Middle-East and Cuba. There is still a significant gap of automobile technology between China and European and American mature markets, so it is difficult to export buses to the developed countries. Automobile industries in developing countries are relatively behind, but with transportation demand increasing, it should be beneficial to the commercial vehicles export of China. Export price per vehicle is higher than that in domestic industry, which could help improving the gross profit of producers.