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Comments on Industry Insiders' Views of Auto Market in Q1

Date:04-29 15:53 Source:Che Ye Za Tan Authour:未知

Comments on Industry Insiders' Views of Auto Market in Q1

The macroeconomic situation is the real barometer for the auto market. China’s economy is growing at a high rate in general even though macroeconomic growth has slowed down a little, so the Chinese auto market still has room for future expansion.

Background: 2.44 million new cars were sold in the Chinese auto market in March and 6.527 million were sold in Q1 overall, up 8.8% and 6.0% YOY respectively.

Researcher: Macroeconomic data show that the overall Chinese economy is looking up. Although the 6.7% GDP growth forecast was still lower than the 6.8% in Q4 last year and we cannot say the macro-economy in 2016Q1 has stabilized, confidence in the economy has recovered. Just as the economic slowdown had a huge impact on auto market, economic upturn is likely to boost auto sales. Sales growth in March and Q1 is in line with expectations, not bad but not unexpectedly good either. Generally speaking, the auto market performed soundly in 2016Q1.

Comment by Che Ye Za Tan: The macroeconomic situation is the real barometer for the auto market. China’s economy is growing at a high rate in general even though macroeconomic growth has slowed down a little, so the Chinese auto market still has room for future expansion.

Auto sales and growth in March 2016

Comments on Industry Insiders' Views of Auto Market in Q1

Researcher: Regarding specific segments, the passenger car segment increased by 6.7% in Q1 and the commercial vehicle segment increased by 1.2% YOY. The data show a typical conclusion: growth rate in the passenger car segment has reduced but that in the commercial vehicle segment has turned positive.

Comment by Che Ye Za Tan: The commercial vehicle segment of the auto market is most closely related to the macroeconomic situation. Therefore, the positive growth rate in this segment can be regarded as a sign that China's economy is stabilizing and looking up.

Auto groups' sales in Jan.-Mar. 2016 (10,000)

Comments on Industry Insiders' Views of Auto Market in Q1

Researcher: The top 10 automakers in terms of sales in Q1 are SAIC, Dongfeng, Chang'an, FAW, BAIC, GAC, Great Wall, Brilliance, JAC, and Geely. They sold 1.6 million, 938,000, 839,000, 737,000, 611,000, 339,000, 233,000, 210,000, 186,000 and 144,000 cars respectively. Nine of the top 10 companies registered YOY sales growth; only BAIC saw a YOY sales decline that was generated by Beijing Hyundai, Foton, and Changhe.

Comment by Che Ye Za Tan: The ranking of domestic automakers has seen changes in recent years for two reasons - the output and sales performance of their JV brands and the performance of their Chinese-brand products, the latter becoming an important indicator. For some automakers, "no progress means falling behind" in the field of domestic brands.

Researcher: Steadiness is the keyword in the current auto market, but some automakers have set themselves irrational sales targets. Because of high sales targets set at the end of 2015, automakers implemented collective official price reductions and massive promotions in April this year. Thanks to the favorable policy on purchase tax in 2016, automakers that had previously seen falling sales began to get excited again, but their market performance was mediocre at best and fell far short of their targets. It's worth noting that the auto inventory early warning index reached 58.9% in March, indicating heavy inventory pressure, and certain dealers had more than two months' inventory. A new round of pressure is on the horizon!

Comment by Che Ye Za Tan: Competition in the auto market is extremely fierce this year and automakers are having a hard time. Even automakers that have performed well in the market have plans for large-scale layoffs and salary reductions.

Researcher: Why are automakers so irrationally obsessed with sales volume? First, sales volume means corporate performance. Responsible enterprises pursue profits to ensure the interests of employees and shareholders, while irresponsible ones believe sales volume is corporate performance and it outweighs everything else. The only thing that concerns them is the interests of specific individuals, and the interests of employees and shareholders can be ignored. Second, scale decides profitability. When automakers are growing, especially when their sales volume is small, cost and scale are closely related. A larger scale means a lower cost and more profits. Third, scale is necessary for competition. This has a double meaning - small-scale companies can easily get kicked out of the industry and scale decides industrial ranking. But those factors do not always prevail. There are so many automakers in China today that the small-scale ones should have been eliminated long ago, and the large-scale ones are not likely to be restructured if they are profitable. Ranking is much less important. There is only one spot at the top, and those ranking after that don't matter. In terms of scale, Mercedes-Benz, BMW and Audi are not very large, but large-scale automakers cannot compete with them in product, brand and profitability.

Comment by Che Ye Za Tan: Which to choose - sales volume, profits, scale or ranking? State-owned automakers and private companies have different priorities. Private automakers always put profits first, but that's often not the most important consideration for state-owned automakers, which attach more importance to sales volume, scale and ranking.

Researcher: The obsession with sales volume leads to the preference for hot-selling models and the desire to create "legendary cars", namely models that create sales records, such as the Wuling Hongguang, Lavida, Haval H6 and Baojun 560. Legendary models easily catch the eye and lead to large sales, so it's understandable that automakers like such models, but if they all strive to make such models, problems will come. First of all, they have to consider whether the company is able to create legendary models. Is it able to match production, service and quality with high output? Does it have the necessary brand, products and channels? Second, they have to evaluate whether the target market provides sufficient demand. Third, is the "legendary model" possible in the existing competition landscape? The fiercer the competition, the more scattered the sales volume, and harder it becomes to create that "legendary model". Fourth, is large scale always accompanied by high profits? Some legendary models have achieved large sales, but their profits were either meager or negative. If the more you sell, the more you lose, what's the use of legendary models?

Comment by Che Ye Za Tan: Legendary models, like popular songs, sometimes appear by accident, so there should not be excessive focus on them. Automakers should pay more attention to improving their systemic capability and focus on raising the success rate of their products.


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