Analysis: Forecasting the Chinese automobile market in Q1 2012

The sudden cooling down the Chinese automobile market experienced in 2011 has continued into this year. Although the common consensus in the industry is that overall sales growth in 2012 will be in the double digits, the majority of participants in a recent survey of analysts and experts conducted by Gasgoo.com (Chinese) have conservative opinions regarding the market's performance in the first quarter of the year.

The first question the 1,779 participants were asked to answer was how much they forecast the domestic market to grow by in the first quarter. The majority, 53 percent, predict a positive growth rate of less than five percent, while 37 percent believe that the quarter would end with negative sales growth. Only ten percent believe that the market can maintain a growth rate of over five percent, and less than half of those believe that rate will exceed ten percent.

With the most important government policies aimed at stimulating economic growth in the automobile market having been phased out in late 2010, any leftover effects from those policies have been long gone by now. However, the phasing out of official policies is by far not the only reason behind the cooling down of the market.

In the second question of the survey, participants were asked to identify what they felt was the chief factor influencing market trends this quarter. 27 percent of respondents believe that the uncertain state of the economy was to blame. Despite China's GDP increasing 9.2 percent in 2011, several bodies speculate that economic and industry growth are on the brink of slowing down. The Central Committee itself set a GDP growth target of only seven percent by the end of the Twelfth Five-Year Guideline, a national economic directive which lasts until 2015. The European credit crisis has also started affecting the Asia-Pacific region, which further increases the difficulty of predicting the state of the economy in upcoming years.

Meanwhile, 19 percent of respondents believe that prospective customers spending most of their disposable income prior to 2012 is the crucial factor. In the final quarter of 2011, especially in November and December, manufacturers were under extreme pressure to lighten their near-full inventories. As a result, several dealerships began mass price-cutting campaigns, which prematurely drew in several customers who may have originally waited until 2012 before committing to a purchase. The fact that both New Year's Day and Chinese Spring Festival occurred so close to each other this year may have also influenced the declining sales trend, with 18 percent answering that it was the deciding factor.

Rising costs of vehicle ownership and increasing rates of traffic congestion were cited by 21 percent and 12 percent of respondents, respectively. With the amount of cars on Chinese roads continuing to grow rapidly, both the national and regional governments have responded by taking steps to increase ownership costs. Alongside constantly improving public transportation infrastructure, this has no doubt influenced some potential owners to reconsider purchasing a vehicle. The balance between using public transportation and owning a vehicle may continue to shift in this direction in the years to come.

The third question on the survey dealt with the prospects domestic own brand manufacturers face in the first quarter of the year. A vast majority, 75 percent, believe own brands will continue to lose market share. Only seven percent opposed this view point, while 18 percent were undecided. According to statistics from the China Association of Automobile Manufacturers, domestic own brands only managed 6.11 million passenger automobile sales in 2011, slightly less than the amount they sold the previous year. Overall, they lost 3.37 percent market share to rivals, with several manufacturers, such as Chery, Geely, BYD, Great Wall, JAC and Brilliance, failing to meet their annual sales target.

Increasing market segmentation continues to be one of the largest obstacles for domestic manufacturers to overcome. According to the results of the final survey question, 35 percent believe that subcompacts are the segment with the least positive outlook this quarter. In a similar survey conducted last year, only one percent put their hopes in this segment. It is becoming evident that consumers nowadays are not taking well to these types of automobiles, and it will be up to domestic manufacturers, as the key producers of subcompacts, to find ways to bridge this divide. Imported subcompacts, such as the Chevrolet Spark and Fiat 500, will also have a hard time garnering buyer enthusiasm.

Minivans constitute the other segment analysts aren't positive about, with 18 percent displaying a lack of confidence in their performance this quarter. Minivan sales totaled 497,700 units in 2011, an 11.74 percent increase from the previous year. 

Those maintaining negative outlooks for the luxury, mid-size, compact and micro car segments amounted to nine percent, 12 percent, ten percent and 11 percent of the total, respectively. Several in the industry actually believe that there is a lot of room for Chinese manufacturers to develop in the compact segment.

Only five percent of respondents were pessimistic about the performance of SUVs this quarter, once again showing the strength of this segment. It seems to be only a matter of time before more manufacturers decide to enter the fray with their own SUV models.

In summary, it is at very least evident that the downward market trends beginning in 2011 will continue into the first half of this year. Once again, domestic manufacturers should be the most concerned about this. It is up to these manufacturers to find a way to get out of their respective slumps, otherwise the gap between them and their foreign-backed rivals will continue to grow.