China market analysis: PV sales up 27% in July, LCV numbers plunge

Passenger Vehicle (PV) sales in China increased by 27.8% year‐on‐year (YoY) in July, the biggest growth seen year‐to‐date (YTD), with 1.66 million vehicles sold. In contrast, the Light Commercial Vehicle (LCV) sector continued to suffer, with sales plunging by 11.4% to 0.22 million units, driven by the dismal state of the mini bus segment.

LMC Automotive says for the Light Vehicle (LV) market as a whole, sales improved by 21.6% YoY in July, with a total of 1.87 million units sold. In the year‐to‐July, PV sales rose by 12.7% YoY to 12.86 million units, LCV sales fell by 12.4% to 1.91 million units, and the LV market as a whole climbed by 8.7% to 14.78 million units. The seasonally adjusted annualised rate (SAAR) for LV sales in the month of July suggests that the market is on a stable footing, with a rate of 27.91 million units, the highest since the start of the year.

While still below the SAAR achieved in November 2015, July’s rate reflects a firm upward trend. CADA’s dealer‐level inventory index stood at 1.39 months at the end of July, 10% down on June and 16% lower in YoY terms. Once again, the index fell below the warning line of 1.5 months. Retail sales benefited from a number of regional auto shows, as well as promotional campaigns by automakers, while volumes were bolstered further by the fact that several OEMs opted to sell fewer cars to distributors in preparation for July’s production line inspections. These various measures helped to relieve stock pressure, with July’s index boding well for vehicle sales in the months to come.

SUV sales keep surging

To a large extent, this strong growth was predictable, given the low base in July last year, when the automotive market in China suffered a three‐month slump that began in June. LV sales in July 2015 amounted to a mere 1.54 million units, marking a 6.6% decline on the same month of 2014, and triggered panic in the market at the time.  However, while it is true to say that the July 2016 performance came as no surprise, it is worth noting that there have been several new developments in the market. The exceptional momentum in the SUV segment shows no signs of abating, with sales soaring by 40% in July, as the segment gained a 38.8% share of the overall PV market.

Japanese‐branded models enjoyed steadily strengthening sales, with Honda making a particularly noteworthy contribution, driven by improved CR‐V volumes and the brand’s timely model release program, which helped to reinforce Honda’s market position within the key sub‐compact SUV sector.

European‐branded SUVs, on the other hand, put in a less dazzling performance, due, in part, to the comparatively lower appeal of their products, but also to the fact that several models, such as the VW Tiguan, are approaching the end of their lifecycles, with next‐generation models waiting in the wings. Indeed, the new generation of the Tiguan will reportedly launch in October this year and, according to the automaker, will boast a larger body and a new design language, while also offering an optional 7‐seat version. Looking further ahead, LMC Automotive says it expects to see European brands explode onto the SUV market in China over the next two years, with increasing numbers of new models joining the race, bringing even greater intensity to an already highly competitive segment.

In the passenger car segment, the rate of improvement was 18.4% slower than that seen in the overall vehicle market, with sales in the year‐to‐July dropping by 1.6%, while share of the overall PV market shrank from 56% in July 2015 to 52% in July 2016. Within the segment, only the Compact and Luxury sub‐segments experienced growth in YTD terms, albeit at a fairly low level. Against the backdrop of a contracting car segment, the bestselling models within each sub‐segment monopolized volumes.

Closer analysis of China’s premium segment reveals that Mercedes‐Benz expanded within virtually every sub‐segment, on the back of robust sales of its new generation of products. Sales of the S‐Class almost doubled, far outpacing the competition, while the C‐Class outsold both the BMW 3 and Audi A4 to hit the top spot in the midsize luxury car sector in July.

Meanwhile, the automaker’s SUVs, the GLA and GLC, were hot on the heels of the leading models in their respective sub‐segments. Finally, a new E‐Class was launched in August to enthusiastic acclaim, and is set to exert considerable pressure on market rivals, the BMW 5 and Audi A6. Indeed, all indications are that the top‐tier of the Luxury segment has recovered its previous form.

The rosy picture painted by July’s robust performance marks a positive start to the third quarter, so much so that it has prompted a number of automakers to raise their sales targets for the year. However, until the future of China’s purchase tax cut policy is clarified, the second half of the year will remain shrouded in uncertainty.

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Data source: LMC Automotive