Domestic players continue to outperform overall Chinese market in May - CAAM data

The slowing Chinese new-vehicle market contracted 0.4% year on year (y/y) in May to 1,909,774 units. According to the detailed data revealed by the China Association of Automobile Manufacturers (CAAM), overall vehicle market sales grew 2.11% y/y to 10,046,228 units during the first five months. The association said vehicle production stood at 1,964,200 units last month, down 0.6% y/y. The decline in May's production brought down the year-to-date (ytd) output growth by 3.2% y/y to 10,244,400 units. It should be noted that CAAM data refer only to wholesale vehicle production and sales. This means that sales reported by the CAAM are vehicles that have been moved from the automakers' production bases to dealerships. CAAM data also only include models that have been locally produced and sold in China, and do not include imports.

The top players in the market continue to be led by the large state-owned enterprises (SOEs), which rely largely on volume sales of products produced under their joint ventures (JVs) with established international automakers in China. Leading from the front is the SAIC Group, which sold a total of 432,392 units in May, down 4.2% y/y. The decline in monthly volumes caused its ytd sales growth to fall into negative territory, declining 0.77% y/y to 2,404,835 units. SAIC has successful and long-standing JVs with Volkswagen (VW) and General Motors (GM).

Dongfeng followed SAIC in terms of total sales by registering monthly sales of 317,588 units in May, down 1.9% y/y, while its ytd sales also declined, falling 2.6% y/y. The state-owned group has JVs with Honda, Nissan, PSA, and Renault.

The contraction was sharper for FAW Group, which sold 317,588 units during May through its JVs with GM, VW, and Toyota. FAW Group's volumes in May mark a decline of 11.1% y/y from the same month last year. The automaker's sales in the first five months were down 8.9% y/y to 1,170,965 units.

The Changan Group once again outperformed its competitors in terms of growth, although its monthly sales expanded only 0.34% y/y to 218,155 units. The subdued performance in May reduced its ytd sales growth to 12.9% y/y and an overall volume of 1,250,179 units. Changan has JVs with Ford, Mazda, and PSA, which is a relatively new one, but the automaker also has a strong following for its Changan brand of vehicles.

The BAIC Group, which has JVs with Daimler and Hyundai, completed May's top-five list, although its sales slipped 5.6% y/y in May to 185,716 units. This contrasts with 2.76% y/y growth in ytd volumes to 1,024,857 units.

As in recent months, smaller automakers performed better than their larger peers in sales growth terms in May. GAC Group, Great Wall, JAC, Chery, and Geely Auto posted double-digit percentage sales gains during the month, while Brilliance Auto registered 8.1% y/y sales growth. Although their monthly and ytd volume sales are substantially lower than those of the large SOEs, these automakers are witnessing strong growth on the back of encouraging sales for their new models mainly in the second-tier cities of China.

Great Wall's sales in May rose 26.16% y/y, while its ytd volumes gained 21.96% y/y. Chery's sales last month gained 12.37% y/y, while they were up 16.06% y/y in the first five months. Similarly, Geely's sales were up 27.77% y/y last month and 40.998% y/y in the first five months. With sales gains of 21.94% y/y in May, GAC Group is an example of global JVs still gaining ground. The GAC Group has JVs with Honda, Mitsubishi, and Fiat.

Outlook and implications

This is the first instance this year of sales and production registering declines. The summary data released by the CAAM earlier this month revealed that the overall Chinese auto market was let down by an 8.3% y/y decline in commercial vehicle sales to 294,500 units in May (see China: 10 June 2015: Vehicle sales in China drop 0.4% y/y in May, passenger vehicle shipments up 1.2% y/y). Passenger vehicle sales performed relatively better with sales growth of 1.2% y/y in May to 1.61 million units. Within the passenger vehicle category, sales of cars declined 10.1% y/y to 907,000 units, while sales of sport utility vehicles (SUVs) surged 43.9% y/y to 459,300 units. Great Wall's Haval H6, Changan's CS75 and CS35, and JAC's Refine S3 models featured in the list of best-selling SUVs during May. Sales of multipurpose vehicles (MPVs) also gained 7.9% y/y to 140,500 units. Shanghai GM's Baojun 730, BAIC's M20, and Chery's Karry Q26 models were among the best-selling MPVs in the month.

Despite the clearly sluggish market, Chinese brands registered a strong 8.2% y/y sales growth in May to 633,100 passenger vehicles. This strong performance also bolstered domestic players' market share to 39.34% in the latest month, an improvement from 36.79% in the same period last year. However, the domestic players' performance was not consistent across segments as sales of cars by these automakers actually declined 21.6% y/y to 173,400 units. Sales of SUVs by domestic players jumped 92.4% y/y to 237,800 units, while MPV sales of the homegrown players also jumped 10.3% y/y to 119,500 units.

IHS Automotive continues to forecast overall growth for the SUV segment in China, although growth rates are slowing. In 2014, China's SUV sales rose 32.6% y/y to 4.8 million units. This year, we forecast China's SUV sales levels to rise by around 22.3% y/y; however, SUV sales growth will then begin to slow. Double-digit growth in SUV sales is forecast to continue to 2016, when SUV sales levels in China are expected to hit over 6.53 million units per annum (upa). From 2018, production growth rates are predicted to slow to single digits, although output will reach more than 7.15 million upa.

Meanwhile, the sales slowdown has brought price competition to the fore in the market. While several global automakers, including GM and Ford, had revised the prices of their popular models, Great Wall announced a similar measure for its best-selling H6 SUV (see China: 13 May 2015: GM reduces prices of 40 models in China and China: 22 May 2015: Ford cuts production in China, lowers price of Explorer SUV). As the company's best-selling model, the H6 accounts for more than 40% of Great Wall's total sales (see China: 17 June 2015: Great Wall cuts price of best-selling H6 SUV). Apart from domestic players, automakers' sales performances continue to remain disappointing in China, mirroring the country's economy's decelerating expansion. This has also affected luxury-car sales, a segment which has generally remained insulated from mass-market developments. Audi – the largest luxury player in the country - reported its first decline in 28 months, while BMW was also not spared. This is the first sales decline for the BMW brand in China for a decade (see China: 15 June 2015: BMW reports 4.2% y/y decline in group sales in China during May); this left only smaller players such as Mercedes-Benz and Infiniti with meaningful gains (see China: 11 June 2015: Mercedes, Infiniti report double-digit sales growth in China during May). IHS Automotive expects the country's light-vehicle market (including imports) to grow nearly 7% y/y to 24.7 million units.