Across The Border | China’s carmakers head into tough 2016 as tighter competition forces price cuts, production changes
A government tax cut aided sales and a just 1.5 per cent sector-profit increase in 2015. This year looks just as tough.
China’s automotive industry sputtered over the line last year and 2016 looks equally tough due to competition that forced market leaders to slash prices and upend product roll-out plans because of the runaway popularity of sport utility vehicles (SUVs).
The sector had net profit growth of 1.5 per cent in 2015. That result was only possible after the government halved the small car purchase tax to 5 per cent in late September, a move that helped fourth-quarter sales jump 18.6 per cent year-on-year.
Year-end sales incentives dissipated and lunar new year arrived early, the surge was followed by a slump. Passenger vehicle sales grew 6 per cent year-on-year across January and February, a big step down considering the lower base for comparison.
China’s four largest automakers by sales volume — SAIC Group, Dongfeng Motor Corporation, China Chang’an Auto Group and FAW Group — had low-single-digit or nearly flat sales growth. Sales at fifth-placed BAIC Group declined.
Inventories grew. The Vehicle Inventory Alert Index climbed to 59.6 per cent in February from 56.6 per cent a month earlier, well above the 50 per cent line demarcating profit and loss. Fitch analysts have said that may pressure average selling prices downwards.
Shrinking sedan sales, down 12.4 per cent in the first two months of the year, are hurting most car makers. SUV sales soared 54.4 per cent by contrast, increasing their share of China’s passenger vehicle market to 35 per cent.
