Chinese Vehicle Sales Grow 72.5% Y/Y in October

Vehicle demand in China once again surged during October as customers continued to take advantage of the ongoing support measures put in place by the government. According to data released by the China Association of Automobile Manufacturers (CAAM) and published by Xinhua's China Economic Information Service, total vehicle sales during the month rose by 72.5% year-on-year (y/y) to 1.23 million units. As a result, sales in the first 10 months of 2009 stood at 10.89 million units, an increase of 37.7% y/y and well ahead of the total number of vehicles sold in the Chinese market during the whole of 2008.

Of the monthly total, passenger cars accounted for 946,400 million units, a jump of 75.8% y/y, while for the year to date (YTD) the growth rate in this segment is now 45.2% y/y, equating to 8.19 million units. Total commercial vehicle sales for the month also soared, by 62.2% y/y to 279,900 units, taking this category's YTD sales to 2.7 million units, an increase of 19.1% y/y.

By brand, the top-selling vehicle manufacturer during October was Volkswagen's (VW) passenger car joint venture (JV) with First Automotive Works (FAW), FAW VW, which sold 65,791 units. Second place was occupied by General Motors' (GM) JV with Shanghai Automotive Industry Corporation (SAIC), Shanghai GM, whose sales totalled 63,922 units. VW's other JV in the country with SAIC, Shanghai VW, ranked third in October, having sold 61,064 units. Local automaker BYD was in fourth position with 46,646 units sold, closely followed by Nissan's JV with Dongfeng Automobile, Dongfeng Nissan, with 45,006 units.

By model, BYD's F3 again emerged as the largest seller in the Chinese market during October, with 30,008 units. It was followed by Shanghai GM's Buick Excelle, which sold 22,762 units, and FAW VW's Jetta with 21,278 units. The next two best-selling models in the Chinese market during the month were Shanghai VW's Santana with 18,257 units and the Hyundai Elantra with 17,064 units.

Meanwhile, vehicle production in the country also recorded significant growth during October as it surged 79.8% y/y to 1.26 million units, made up of 970,300 passenger cars (up 86.6% y/y) and 287,700 commercial vehicles (up 60% y/y). On a YTD basis, a total of 10.87 million vehicles have been produced in China, an increase of 36.2% y/y, comprising 8.13 million passenger cars (up 42.4% y/y) and 2.74 million commercial vehicles (up 20.7% y/y).

Outlook and Implications

The Chinese government's ongoing incentives continue to boost local vehicle sales, as they have done for the past several months, following a downturn that began during the second half of 2008. Consumer confidence in the market has recovered amid support for the overall economy from the Chinese government, which has increased investment around the country and attempted to stimulate demand for locally produced products. Moreover, those areas of the market specifically targeted by the subsidies have outperformed all expectations, with traditional passenger cars being the beneficiary of a reduction in purchase tax to 5% on vehicles with engines below 1600cc. Sales of passenger vehicles in this category surged 60.4% y/y during the first three quarters of this year to 5.06 million vehicles. Vehicle sales have also improved in the country as a result of the government's measures to incentivise owners in rural communities to replace their highly polluting vehicles with new fuel-efficient models, a scheme that has subsequently been expanded nationwide and to include passenger cars with an engine above 1600cc and small and mid-sized trucks.

CAAM officials have previously said that the government incentives, and especially the purchase tax break, have been crucial in the "steady and rapid growth" of the Chinese vehicle market and will continue to raise volumes for as long as they are in place. Luo Lei, deputy secretary-general of China's Automobile Dealers Association, recently said that the government will have to continue its incentives next year if it wants to maintain the high growth rates currently being seen in the country (see China: 26 October 2009: Chinese Auto Dealership Association Executive Says Government to Continue Incentive Measures in 2010—Report). Meanwhile, some local media sources are speculating that the government may indeed choose to extend its purchase tax break into next year to include vehicles with engines between 1600cc and 2000cc and those with alternative powertrains.

Automakers remain bullish about their prospects for the current year, with many raising their expectations on the back of the strong demand. Hyundai has already raised its sales forecast for the year to 500,000 units (see China: 25 September 2009: Hyundai JV Executive Expects Chinese Sales to Rise 80% Y/Y in 2009). Kevin Wale, president of GM China, recently said that he expects GM's sales for the year to rise 47% from 2008, to around 1.6 million units from its two JVs (see China: 9 November 2009: GM Records 59.8% Y/Y Sales Growth in China During January-October). Even smaller local automakers such as Chery, BYD, and Geely are now on the verge of surpassing their ambitious sales targets for the year.

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