China Car Sales Sputter Out of the Gate 中国汽车销售龙年遭考验

By newsdoug on February 8, 2012

China car sales off to slow start in 2012 China has just published its first monthly auto sales for 2012 and they aren’t pretty, boding poorly for the sputtering market in the Year of the Dragon. Of course, the figures for the month of January come with several major footnotes, most importantly the fact that sales were weak in 2012 as the Lunar New Year holiday fell during the month this year, whereas it fell in February for 2011. Still, the 16.5 percent decline in sales for the month marked the biggest decline in more than a decade, a sharp reversal for a market that was used to gains in the healthy double-digit percentage range for most of 2009 and 2010, and was still seeing healthy growth for most of 2011. (English article) Such a big decline means that just about everyone saw their numbers drop, with industry leader GM’s (NYSE: GM) sales down 8 percent for the month, about half the broader market decline. SAIC (Shanghai: 600104), GM’s main China partner and China’s biggest automaker, saw sales fall by a similar amount. The head of the association that compiles the results was quick to point out the Lunar New Year factor, and added that sales should increase by an even bigger 30 percent in Februrary, more than offsetting the January decline. He further added the China Association of Automobile Manufacturers predicts overall vehicle sales in China will grow about 8 percent this year, about double the growth rate of last year. The organization is usually quite conservative in its forecasts, and will argue that this year should see a return to more normal growth patterns after last year’s dramatic drop following the end of a wide range of government incentives designed to boost consumption during the height of the global downturn in 2009. But considering all the recent warning signs about rapidly slowing growth in Chinese consumption, I think the 8 percent forecast looks quite ambitious and would expect to see the figure revised downward several times, ending the year perhaps in the slight-growth range of 1-3 percent. As I’ve said before, the biggest victims in the slowdown will be domestic automakers without deep-pocketed foreign partners, with names like BYD (HKEx: 1211; Shenzhen: 002594), Geely (HKEx: 175) and Chery the most vulnerable. (previous post) I wouldn’t be surprised to see all 3 of these names slip into the red this year, nor to see one or 2 mid-sized players either become insolvent or simply get out of the business, in what will be a tough year ahead.

Bottom line: Weak auto sales for January, while influenced by timing of the Lunar New Year, foretell a difficult year ahead for the industry, with some top domestic names likely to slip into the red.

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