Growth points after Guangzhou Motor Show?

Citing an undisclosed source from SOHU, the most important event of the domestic new car market in this week ought to be Guangzhou Motor Show. Since November 23rd, the media day has been officially started, on Guangzhou auto show the prices of more than 30 new models has been released and announced to be available in the market. Meanwhile, this time the number of cars firstly displayed and concept cars exhibited at Guangzhou auto show hits a new record. It can be said as the demand of Chinese auto market exceeds 10 million units, the Guangzhou Motor Show also has realized the leap from a regional auto show to a national one.

The Guangzhou auto show which has opened at the end of the year actually is the occasion for major domestic auto market to arrange the layout in advance. During the show, besides the new models that will be available in the market at the end of 2009 or in the beginning of 2010 are exhibited, it is also an important occasion for manufacturers to release their market and sales strategies in the following year. In addition, it is also a chance for people within the industry to discuss the development direction and size of domestic new cars.

As official attitude on whether the widely concerned new car purchase tax policies will be prolonged is not clear at present, so I believe that the majority of manufacturers optimistic thinking about the year 2010 is based on some premises. From the planning of most auto companies of this year’s fourth quarter, it is no doubt that their car production will get on a new stage. Several domestic JV giants who have outstanding performances are busy with the new plant-related preparations. As for as I know, the expected growth of most vehicle companies whose sales volume rank within the first ten is commonly between 10% to 20%, that is, the total sales volume of next year’s auto market is predicted to be between 13.5 million to 14.5 million units. Of course, such a sales forecast is based on premise that the domestic car purchase tax policies and vehicle to the countryside policy will continue.

In my opinion, as to the demand pre-estimated in domestic new car market in 2010, both policy and market demand must be taken into consideration comprehensively. The influences that purchase tax preferential policies impose on a part of consumers mainly emphsis on their motives and mentality. This year, many consumers start to pay attention to new auto market and finally complete their buying behavior not because the total budget of new cars they purchase are cheaper than in 2008, but due to the purchase tax preferential policies.

It is noteworthy that compared with the downturn in domestic new car market in the second half of 2008, in 2009 the terminal sales prices small cars and compact cars with a displacement of about 1.6 liters or less are generally higher than the level of the second half of 2008. Even though there are tax breaks of 5%, in 2009 the actual average costs of many popular models are still higher than that in level of the third and fourth quarter of2008. This means that prices are not the main reason for the buying behavior of some consumer in 2009. In fact, the purchase tax preferential policies are an important driving force.

As the Prime Minister said during the economic crisis that ‘ confidence is more important than gold’, the purchase tax preferential policies, vehicle to the countryside policy and the planning of revitalizing the automobile industry stated by the government in 2009 cause some consumers who originally planned to buy cars in 2 to 3 years begin to pay attention to the auto market in advance and finish their car purchase plan under the temptation that the tax concession period will be only one year’s long, which is what so called the ‘policy effect’.

Therefore, in 2010 whether the national auto industry policy and tax incentives policy get largely changed show will seriously influence the consumers’ buying mentality. To my view, besides expanding the production capacity, it is necessary for the domestic automobile enterprises to it is to carefully study and analyze the trends and development direction of national auto industry policies meanwhile. After all, , compared to other industries in terms of the real economy, the rapid growth of the automobile industry in 2009 has been quite outstanding.

Because of this, I believe that if he demand in domestic new car market gradually get stabilized and continue to maintain a growth of more than 15% the first half of 2010, then the state will consider a withdrawal of related preferential policies. For example, in purchase tax incentives, a fixed purchase tax rate may gradually replace the current interim concessions while some other short-term simulative policies such as vehicles to the countryside and compensation for replacement of old vehicles and will be abolished after the market is stable. With the gradual withdrawal of these preferential policies, I believe that in 2010 demand growth in the domestic new car market will gradually be stabilize. An annual growth of 10% to 20% of new car sales is beyond the normal range.

To auto companies, the greatest impetus of the demands in domestic new car market in 2010 will no longer be the preferential policies, but more new models introduced by manufacturers, as well as how to make more young consumers to get used to auto finance products and achieve their dream of purchasing cars in advance. Compared to people born in 70s, these born in 80s have stronger intention to buy cars. These potential young consumers are also an important supporting force of the sales performance of domestic new cars this year. Meanwhile, it is easier for the younger generation to accept the financial and credit services provided by the car manufacturers, which cause a favorable source for domestic automobile enterprises to increase the revenues in the future.

In addition to new market demands, an important change in domestic new car market in 2009 is the increasing number of consumers who will purchase a second car, which, I think will further improve in 2010. The ratio will further improve in 2010. From 2003, the private car buying behavior rapidly increased. The years after 2003, domestic new car market is always in high-speed growth period. These who bought cars in 2003 begin to consider change cars. This market demand is activated by the preferential policies issued by the government in 2009. As the number of consumers who are intended to get new cars increase, they will also become one of the main consumer groups of domestic new car market. Meanwhile they will also be the base that can cause the prosperity of the domestic second-hand car market in the future.

Compared to consumers purchasing their first cars, these who are intended to buy a second car have more extensive experience of how to use vehicles. These mature consumers will also accelerate the pace of survival of the fittest in domestic auto market. Some bad models and car brands will be difficult to re-attract the concern of this type of consumers. The demands in the domestic new car market as well as the sales volumes of top models and word of mouth models will thus be further centralized in the following several years.

More demand growth may originate from the central and western regions, rather than the traditional southern coastal areas. This will be another tend of the domestic new car market in 2010. In fact, this tend began to appear in 2009. Compared to the traditional first-line market, the demands of the central and western regions as well as the second and third line cities increase to a certain extent, which is mainly due to income levels of residents in these cities gradually become high enough for them to afford cars. It is predicted that in the next five years, the actual demands in the second and third line cities will continue to maintain a rapid growth while growth in first-line cities will be weak or even negative.

　　Comments：

Despite the uncertainty of the government’s policies, the needs of the domestic new car market in 2010 will not be lower than in 2009 because the mainstream consumer groups are slowly undergoing change. To all domestic automobile companies, having a accurate prediction and insight about these changes in the market will greatly affect their new products introduction and development. Who can provide suitable products to meet the needs of these potential consumers will directly decide who will be No. one concerning the sales performance in 2010.(Translator: Yalong/ Jessie)

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