Analysis of passenger car market in Sept

　　Review of September passenger car market

As the sales of passenger car market made new record for consecutive several months, combined with some other favorable factors, a new car sales record in September is within the expectation. In September 2009 the numbers of car production and sales reached 1 million units and more than 20 auto manufacturers created a monthly sales record. Consequently, both sales and production of passenger cars have surpassed the figure of whole 2008. There is denying the fact that car sales of 2009 could be more than 13 million units. However, the growth rate of September 2009 is not higher than that of August compared to the same period of 2008, because some cars planned to be sold in September were instead sold in August.

Constrained by the production capacity and low inventories of many auto manufacturers, dealers couldn’t sell more cars in September. Even so, broad gauge passenger car market’s growth at the speed of more than 80% is indeed a miracle. Generally there should be 21 working days in September, but 2009 there were 23 working days and it was definitely a good opportunity for expanding production. With the expansion of production capacity there were more cars to replenish inventories in September than other months of the third quarter .In fact the increase of inventories didn’t have a great influence on the overall situation for it couldn’t solve the serious shortage of car inventories effectively, though it exerted great significance in stabilizing the market car prices.

Table of narrow Sense passenger cars ' monthly sales from 2005 to 2009

　　Outlook for October passenger car market

October 2009 only has 17 working days. Analysis based on 17 working days in October shows that daily car sales could be 15% more than that of September. Unless Chinese auto manufacturers plan an average of at least 2 days holiday overtime, production and sales wouldn’t be in balance. However, to organize an average of at least 2 days holiday overtime is very difficult, so the turnover stock of cars may be reduced. Good factors for the passenger car market in October are as follows:

　　1 A cool weather and the longest “Golden Week” National Day holiday which is the best period to purchase cars.

　　2 WHO predicted H1N1 would turn a pandemic in this year’s fall and the early of winter. Therefore, in order to reduce the possibility of infection, an increasing number of people would buy a car.

　　3 On September 30 the prices of gasoline and diesel oil slightly dropped, which is supposed to have positive impacts on pushing people to buy cars.

　　4 A number of new cars will be introduced into market and many auto shows in some regions could also stimulate the car sales in October.

　　5 Considering that corporate profits and state revenues in the third quarter improved dramatically, public service vehicle market should rebound.

　　6 Auto manufacturers couldn’t grasp the situation clearly of next year’s market so they will spare no efforts to broaden their car production and sales in the fourth quarter of 2009.

　　7 The first week sales of only 2 days in October have been much higher than the first week sales of 4 days in September.

Based on the above analysis, in October sales of broad gauge passenger cars should be around 900,000 units.

    Reasons to explain the fast growth of passenger cars’ production

Production of broad gauge passenger cars in January was 535,000, including some auto manufacturers’ overtime production. However, the figure in September 2009 reached more than 1 million, at least 90% higher than January.

Productivity growth is difficult to understand. In fact, in March last year when the world's car market was shrinking, all auto giants were competing for Chinese auto market. Then the production of broad gauge passenger cars reached 712,000. After that Chinese auto market also began to shrink and there was a sharp drop in imports of parts orders of joint ventures. Besides, a number of Chinese auto manufacturers had to lay off some employees to avoid the marker risk. In mid-December last year, Chinese government has adopted a series of policies to stimulate the car market .Pushed by favorable policies, demands for new cars rose sharply. However, imports of parts for emergency orders need at least 2 months to arrive, thus car sales in December 2008 and January 2009 are 200,000 higher than the amount of production.

In February 2009 many enterprises used up security reserves of imported parts, leading to the big decline of production and also imposed a serious impact on car sales. Until March 2009 when some additional orders of some imported parts arrived, production and sales started to in basic balance.

Meanwhile, huge market demands stimulated Chinese auto manufacturers to increase their production by hiring more workers, using new factories and expanding production capacity so that the normal production capacity could increase by at least 150, 000 units each month. Plus overtime, the maximum effective production capacity in September could reach more than 1 million units. At present the utilization rate of effective production capacity of passenger cars is around 120%, and only China have such a high utilization rate of effective production capacity, indicating hard-working Chinese people can contribute a lot to Chinese economic development.

　　We must have a clear understanding of relevant statistics

Economics is a very complicated empirical science, any laws and concepts in economics must have a lot of preconditions, otherwise, these laws and concepts can’t be persuasive. A single data in economics can only represent parts of a particular concept. Therefore, we must combine a series of data and analysis or understandings of the specific circumstances in order to depict the whole picture of a concept. For instance, the CPI growth rate of August 2009 was negative 1.2 percent compared with the same period of 2008 and if the CPI growth rate of September 2009 would be negative 0.7 percent compared with September 2008.

Then the growth rate in August and September would be 0.5%, mainly reflecting CPI tended to decline from high level compared with the same period of last year. In other words, 0.5% can’t signal the increase of consumer goods’ prices. At present Chinese government hasn’t released CPI index and growth rate compared with last month, so there exist misunderstandings are inevitable. In the first half of 2009 Chinese auto marker is in the process of recovering .However, in the second half of 2009 the auto market began to in fast growth high growth, partially because the negative growth of 2008 compared with 2007.Impacted by the favorable policies, consumers showed huge demands for new cars.

Even so, the growth rate in 2010 are supposed to drop sharply compared with 2009.As a matter of fact, the reasons not lie in the deteriorating conditions of Chinese auto, decline of the huge demands of Chinese consumers need some time to re-gather. To sum up, we must have a clear understanding of relevant statistics.

　　Large and medium displacement passenger car market started to rebound

In third quarter of 2009 1.8-liter narrow gauge passenger car market started to rebound with its market share rising from 37% in the second quarter to 38.3% .In September 2009 sales of Mercedes-Benz, BMW and Audi in China were respectively up by 56%, 35% and 37%. Based on the above fact, Singapore's Lianhe Zaobao said demands of Chinese consumers are boosting global sales of luxury cars.

If there are no effective initiatives, even half purchase tax concessions for passenger cars with a displacement of or below 1.6 liters remains implemented, market share of 1.8-liter narrow gauge passenger car market would quickly return to the level of more than 40% in 2008, which is violating Chinese government’s major targets. The poorer developing countries often have high grade of passenger cars, which is a common feature in developing countries, because a luxury car can help the owners to show off their power, status and wealth.

If there is no effective guidance, the current situation can’t be easily changed. Since the fifties of the Twentieth Century Japan began to provide cars whose displacement are below 0.66 liters with preferential tax policies. As a result, small displacement passenger cars dominate its auto market. China has large population and it is the largest energy consumption country in the world. With the rapid economic growth, energy consumption will also increase rapidly at the same time, so energy-saving and emission reduction is eternal subject for China to tackle. Moreover, before the abolishment of interim stimulus policies, alternative policies should be developed as soon as possible and be implemented swiftly, otherwise China is not able to accomplish Revitalization Plan for Automobile industry, and the abolishment of stimulus policies would result in many international conflicts and troubles.

　　Abolish the "vehicle features", but should prevent the rise of assembling cars

According to the WTO's ruling, China abolished The Measures for the Administration of Import of Automobile Components & Parts Featuring Complete Vehicle. In fact, China's accession to WTO documents wrote: “For the treatment of auto parts tariffs, China must confirm it hasn’t setting up a tariff lines for sets of auto parts and half sets of auto parts. If China plans to set up such a tariff lines, the level shouldn’t be more than 10%.

People familiar with the WTO legal documents had long estimated that China would lose the appeal. WTO’s ruling is providing an opportunity to import CKD, SKD and DKD assembly cars so as to make huge profits. Dot think with the development of China's auto industry, no one is engaged in assembling cars .A number of joint ventures as well as some individual-funded enterprises in China were developed from assembling cars. Considering the huge profit, they are supposed to do that in the future. Car production in the first nine months of 2009 surged 31.56%, while the number of CKD assembly cars increased by 63.36%. Effective measures can be taken by Chinese government are as follows:

　　1 WTO's ruling are resulting in the huge profits of assembling cars .Therefore, government should forbid the imports of SKD and DKD assembly cars ,and imported CKD assembly cars must be "body in white".

　　2 Many developed countries’ governments only purchase cars made by their own individual-funded auto manufacturers, then cars made by Chinese auto manufacturers whose localization rate is less than 60% shouldn’t be included in Chinese government’ procurement directory, which is the most polite way to safeguard our national image and to ensure the basic healthy development of China’s auto industry. (Translator Qinghua Wade)