Chinese Passenger Car Sales Rise 39.1% in April

April Continues Recent Growth Spurt in Passenger Car Market

China witnessed 39.1% year-on-year (y/y) growth in the passenger car market in April as a combined total of 468,400 units were sold in the country, according to data published by the China Association of Automobile Manufacturers. Combined vehicle sales, including light commercial vehicles (LCVs) and heavy commercial vehicles (HCVs), also rose by 25.4% for the month. However, according to the association's figures April's impressive growth figures did not match the overall year-to-date (YtD) growth rate for the current calendar year. According to the figures for the first four months of year, passenger car sales grew by 49.8% between January and April to 1.72 million units, while overall vehicle sales rose 33.5% to 2.41 million units.

Shanghai GM Leads the Way as China's Biggest Manufacturer
The joint venture (JV) between General Motors (GM) and Shanghai Automotive (SAIC), Shanghai GM, remained China's biggest carmaker by sales volume in April. Shanghai GM sold 37,500 units in the month, which was enough to restrict Volkswagen's (VW's) two Chinese JVs, Shanghai Volkswagen and FAW Volkswagen to second and third places in the best sellers table with 34,200 units and 30,800 units respectively. Shanghai GM's Chinese sales have received a boost as a result of strong demand for the Buick La Crosse and Buick Excelle model ranges. Shanghai GM also led Shanghai VW in the YtD sales table for January to April with 118,600 units in comparison to the latter's 110,600 units. However, Chery is ahead of FAW-VW in third place on the YtD table as a result of strong sales of the QQ A-segment car. Beijing Hyundai is likely to challenge the top three Chinese car makers over the next two years as the South Korean company is investing heavily in increasing its production, marketing and distribution presence in China.

Outlook and Implications
The impressive growth in passenger car sales in April and over the first four months of 2006 would suggest that the Chinese automotive market is returning to the kind of sales growth experienced during the boom period of the early part of the decade. The Chinese government imposed tighter credit controls after this initial boom to prevent inflation which restricted growth to 15% in 2004 and 21.4% in 2005. This compares to the boom years of 2002-03 when the market grew by 60%.

While the evidence presented by the YtD sales figures in 2006 suggests a return to this kind of growth, we would expect to see a slowdown towards the end of the year in comparison to the 39.1% growth recorded in April. Despite the strong start to 2006 the overall trend over the next five years is expected to generate more modest overall sales volume increases. It is therefore likely that demand will not be able to keep up with the ambitious expansion plans of many of the carmakers involved in the Chinese market. As a result some downscaling can be expected following the current rush to increase production capacity in China.

However, on a short-term basis China's leading carmakers continue to post strong growth despite the introduction of a new sales tax in April that has been designed to favour smaller, more fuel-efficient passenger cars. While the sale of small cars has been boosted there has been little sign that the tax has had a negative effect on prestige carmakers such and Audi and Mercedes-Benz.