Falling sales: A convergence of challenges
Updated: 2011-06-20 16:59
By Jenny Gu (China Daily)
Passenger cars up slightly while minibus numbers suffer a precipitous decline
While May's 1.4 percent drop in light vehicle sales - the first fall in 27 months - might look discouraging, the market is not overly pessimistic as it sees the rationale behind the decline.
In fact, passenger vehicle sales for the month continued to increase to 943,000 units, a slight growth rate of 3 percent year-on-year.
It was light commercial vehicles that continued their downward trend in May to 380,000 units, a decline of 12 percent, which drove down overall light vehicle sales.
On a seasonally adjusted annualized rate, May's numbers would mean sales of 15.6 million units for the year, the lowest adjusted figure since January.
Loss of production from Japanese automakers due to disruption of component imports is a major reason for sluggish passenger vehicle sales.
Though we expected a loss, it is larger than predicted.
Toyota was most severely impacted, with a 59 percent decline in sales in May. Its output in the month was only 22,000 units, a third of its monthly average in 2010. Similarly, Honda sales were 39 percent down year-on-year, with output reduced by 47 percent.
When demand was at its strongest, we predicted it could draw in future sales and it appears we have entered that period.
Also, some provinces have now banned minibuses from use as school or tour buses, further contributing to shrinking light commercial vehicle demand.
Chang'an Group has been impacted, with sales deceasing by 26 percent in the first five months for its Chana, Hafei and Changhe brand minibuses.
As a result we have changed our outlook for light commercial vehicle market this month. Our forecast for the segment has been cut by 120,000 units, changing the annual growth rate from negligible 0.4 percent growth to a negative 1.9 percent compared to last month.
We've also heard that major minibus manufacturers are substantially cutting their full-year sales targets.
Other factors supporting a downward revision are higher inflation, rising fuel prices and further monetary tightening.
Companies will be more reluctant to buy a light truck or bus given the tightening monetary policy and accelerating inflation.
Yet we remain confident about the passenger market for the second half of 2011 and maintain our forecast of 13 million units.
From the registration data, we notice that retail demand remains robust, so the deceleration in wholesale figures from manufacturers could be partly due to a reduction in inventories.
In addition, the recovery of operations at Japanese automakers Nissan and Mazda is faster than we expected.
It remains possible for their lost volume to be recovered through the remainder of the year, so we expect the second half of 2011 to account for about 52 percent of the annual total.
The author is a senior market analyst at JD Power Consulting (Shanghai) Co Ltd. Her email address is Jenny_gu@jdpa.com
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