China Autos Report Q3 2009

The Chinese automotive industry continues to battle against the global slowdown, registering its fifth consecutive month of sales growth in April. Moreover, sales of 1.15mn units broke the previous record of 1.1mn units set in March. The report highlights the converging of the Chinese and US markets as the record figures keep China just ahead in terms of monthly sales. Moreover, sales for 4M09 stand at 3.478mn units compared with 3.023mn units for all light vehicles sold in the US. The market is in line with the forecast for growth of around 6% in 2009. We are currently forecasting average annual growth of 8% for the next three years, with a return to double-digits in 2011.

While the government's stimulus plan and scrappage scheme are helping the industry's immediate future, progress in new technology is helping to ensure the industry's longer-term stability. Domestic manufacturers are playing a prominent role in the move towards alternative fuels, while BYD Auto is now in talks to supply powertrain systems to US and European carmakers. Nissan Motor, meanwhile, is the first international carmaker to sign an agreement with the Chinese government, which will include sharing its expertise in developing electric vehicles (EVs) as well as setting up a battery recharging network. The group is also bringing forward its nationwide launch of EVs to 2011.

China's attractiveness to international manufacturers is reflected in its pole position in the Business Environment Ratings for the autos industry in the Asia Pacific. The market's highest scores are still for its Production and Sales Growth Potential, based on the forecasts, taking its final rating to 66.5 out of a possible 100. However, even though a low level of vehicle ownership can look tempting in terms of possible growth, the low score for Country Structure (caused by the large gap that exists between wealthy towns and poorer rural areas) acts as a clear restriction on potential penetration. In terms of China's Macroeconomic Environment, a healthy long-term political and economic outlook ensures strong scores for the country's Risks to Realisation of Returns.

Although the two Volkswagen (VW) joint ventures (JVs), Shanghai VW and FAW-VW, led the passenger car market in Q109 with sales of 134,000 and 131,100 units, respectively, US rival General Motors (GM) is upbeat about its potential in the country. The US firm now expects the market to expand by 5-10% rather than its original projection of less than 3%. GM Asia Pacific's president, Nick Reilly, expects his company to likewise achieve higher growth than the market by around three percentage points (pps). Fellow US carmaker Ford Motor also expects to outperform the market after launching its new Fiesta to coincide with new tax break for small cars.