Chinese car sales were strong this year, increasing by 34.1% in the first 11 months of this year according to the China Association of Automobile Manufacturers and the WSJ. But those numbers have largely been driven by government incentives on cars with 1.6 liter engines or smaller, a segment that accounts for some 70 percent of the passenger car market. But, according to the CAAM
China will likely extend one incentive for small-car purchases–a cash subsidy of CNY3,000 a car for purchases of certain fuel-efficient vehicles with 1.6-liter or smaller engines. The purchase tax for small cars, however, will likely rise to 10% from the special low rate of 7.5% currently
Moreover, some cities (including Beijing) could start regulating the number of car puchases allowed, and this combined with a reduction in subsidy levels could cause sales to start declining.
According to several analysts quoted by MarketWatch, Chinese market sales growth could slow from its 30% and higher rate to a low-double-digits rate next year.
With a higher base for comparison and dissipation of stimulus effects, we expect China vehicle sales growth to slow to 11% in 2011
And it’s not just volume. Margins on Chinese market sales should go down as well
We believe the upward cycle of China’s automobile industry, in terms of corporate profits, will peak by 2011. With the supply-demand dynamics losing momentum, we expect margins of Chinese auto makers to return from super-high levels in the first half of 2010 to average levels in the second half of 2010 and in 2011
The Chineseautomakers are seen as particularly bulnerable because they tend to compete in the lower price points which are more vulnerable to reductions in subsidies. One analyst notes of Geely
Geely, along with other small car producers, is facing two problems – a glut in inventories and over-capacity
But, because penetration of inland markets remains low, analysts still see room for some growth… China is simply coming back to earth and growth will continue at a much lower level than it has over the past several years.
Nice Picture… looks like an Ultimate Bumblebee toy with a passable Photoshop job and a new head.
Didn’t I see an article from Bertel saying that they would hit 20M in sales next year?
Yes you did, less than 12 hours ago.
Do the math: Use more than 18 million this year. Apply a very moderate growth of 15% (that’s half of this year) and what do you get?
A lot of people have problems with percentages, especially with growth percentages.
Last year, when China became the world’s largest auto market, the same analysts predicted a slowdown. They got their slowdown from 13.6 million to 18+ milllion. Sure, the percentage growth slowed from +45% last year to around 30% this year.
In absolute numbers, in 2009, Chinese bought some 4 million cars more than in 2008. In 2010, they will again have bought some 4 million more than in 2009.
If they do the same in 2011, the analyst will be right, growth slows to 22% and we’ll end up with 22 million.
Arriving at 20 million needs only 11% growth, a nightmare scenario in Chinese eyes.
There is only one number you need to look at: 63 cars per thousand in China. 800 per thousand in the U.S.
Where I live, I’d rather live on 5% interest on a million than on 60% interest on $10 …
And the impact of the tax? It’s for low displacement cars only. So you buy a $3000 QQ, and pay $225 in taxes now. In January, these taxes rise to $300. Big deal. Sure, they are watching every penny in China, and will rather buy the QQ in December than in January. So you will see a little blip in the first quarter. But nothing compared to the effect of the withdrawal of the scrapping money in Europe or the subsidies in Japan. In these markets, sales are mostly replacement sales. You can delay, no big deal. Different in China. Only 6% have a car. 93% want a car.
When totaling up the factors on the downside, let’s not forget China’s real estate bubble:
http://english.peopledaily.com.cn/90001/90778/90860/7226010.html?source=patrick.net#p_navigator
I reckon it’s worse than this article from China claims. because China is export-oriented and bubbles there is happening into the headwind of a global depression. No customers, no cash.
There are a lot of things that are different in China, and one thing is real estate. In real estate, the long term appreciation is in the land, not in the structure. The structure depreciates over time, the land (usually) appreciates, especially in desirable locations.
Now in China, you don’t buy the land. The land is owned by the government. You buy a 75 year lease. That time value gets less as time moves on. And the structure … well, let’s just say that an apartment complex, Chinese-built 10 years ago, doesn’t look very desirable. I made a lot of money with U.S real estate. I won’t touch Chinese real estate.
The “bubble” increases are in new construction. The poor folks who go for it see much less appreciation over time.
If you know real estate, you look at the rent versus buy relationship. Five years ago, I rented a very desirable 2800 sqft duplex on top of a 40 ft tower on Beijing’s Park Avenue (Changan Ave) for 20,000 Yuan. The rent never increased. Suddenly, the landlord wanted a 5000 yuan increase. Landlord got the finger. In one day, I looked at 10 empty places in the same complex. I rented something nicer, better kept up, for less. My hunch is, the current landlord will end up with an empty apartment.
What’s wrong with that picture? Real estate prices going through the roof while rents remain flat? The classic bubble indicator. However, this bubble doesn’t hit Joe Blow, it hits real estate speculators. The government sells 75 year leases to mainly state owned enterprises. The Chinese government financed a lot of its stimulus money from the real estate bubble. SOEs sell apartments to speculators while building goes up. Speculators sell when finished. A lot of these places sit around empty.
Actually, the government is engineering a little bubble pop themselves after they had “sold” a lot of 75 year rents. On your first apartment or house, you need to pay 25% down. Buy a second one, it’s 50% down. Anything further: All cash. Prices are coming down in Beijing, But nothing compared to the U.S. in 91 and 08 …
How does this impact cars? It does not. There is something else that is different in China. You don’t need a FICA score to buy a car. More than 90% pay in cash. You don’t buy a house and then use the equity to get a car loan.
How real estate is paid for in China is not the central problem.
The problem is that construction represents some 50-60% of GDP in China. When the real estate bubble grinds to a halt, the construction will stop. When it does, the ability of people in China to buy cars will stop along with it.
Chinese system sounds like (state-owned) leasehold and isn’t exactly uncommon in the world, Hong Kong for instance has that system
The Chinese energy ministry just got the shock of their lives. They’ve seen growth in crude imports of 26% for the last quarter when they were hoping to contain it to 15%, and on significant rises in prices too. That might make the yearly figure somewhat close to a 30% increase. The Chinese see this as national savings being sent overseas after being burnt in a tail-pipe.
The central party won’t be letting this go on much longer. Not to mention the inability to actually drive what you own anywhere easily now that “everyone” is getting one.
Get ready for the Chinese car-party hang-over.