Analysis of 2010 July Passenger Car Market

　　Review of July Passenger Car Market

　　The fluctuation of the Chinese automobile market decided that in July passenger car market has a flat beginning but a higher trend. July sales of passenger cars will decline as expected. But the market has nearly returned to normal level. July has one less working day than June. July Yangtze River floods are more serious over the years. Luckily, the Three Gorges dam flood diversion project reduce flood peak from 70 thousand cube / sec to 40thousand cube / sec, therefore, serious disasters have been avoided. However, the logistics and car sales have been adversely impacted. On the other hand, since large stock reported by media previously, consumers have a wait-and-see attitude, which is another disadvantage. Last month, the author analyzed that July has six advantage factors, besides, in July, the dealers and manufacturers set off promotion, credit, and subsidies as the market activities. Mini cars enjoy three types of subsidies restarted cash for clunkers, car to the countryside and tax preference, adding up to 10,000 Yuan if the old car included. With less than 30,000 Yuan, farmers can change for a larger and more fuel-efficient mid-size car. Consequently, in July passenger car sales still grows by13% year on year, consistent with the result forecasted by the Joint Advisory Committee of China Passenger Car Market.

　　Outlook of August passenger car market

　　Because of the hot weather, at the first ten-day period of August, many businesses will begin a vacation and maintenance and repair will be carried out. The highest temperatures at that time will also have an impact on production and sales. As dealer inventories are still increasing in July, in August the passenger car market will also has a flat beginning. According to historical records, the figure was only 50% August has a lower sales compared with July. Last year in July there were 23 working days, but in August production and sales still surpassed July with only 21 working days. In the second quarter of this year, all months have 22 working days. In August there are one more working days compared with one year before, which will benefit the sales. As this year’s flood season arrives early, floods will be fewer in August than in July, which will favor logistics, manufacturing and marketing. By the end of August, since temperatures will go down and the traditional golden September will be starting, sales will rebound quickly. Besides, many favorable factors will continue go into August. In a word, in August sales of passenger cars should be equal to that of July.

　　High-speed growth momentum in the passenger car market

　　someone says the rapid development of passenger car market mainly due to economic development. But if measured with the R value, significantly advanced Chinese passenger vehicles consumption do not match economic development. Someone says the policy is a major factor, but in the first half of this year, without policy preferences, MPV, SUV, and senior, high-level sedans, especially imported cars imposed the highest taxes all have gained high growth. Therefore, passenger cars are only related with economic and policy weakly. At early stage, the rapid development of passenger car market mainly driven by the dramatic changes of the concept of private car users, consumer psychology and trends, outward manifestation is the wealthy have more cars, and the purchase tide of the after 80s, which will put people around with the same or better economic conditions under psychological stress, and finally cause they to change for a new car. The internal factor is more than 20 million billion Yuan deposits of Chinese families are supporting the current and future advanced consumption and the very strong pursuit of Chinese people to modern life. As the high-quality after 80s and the rich mainly live in big cities, this year the sales in the third and fourth tier markets grow slowly. Besides, since the too fast growth has already resulted in decreased social acceptability, in the future car market will enter low-speed growth era.

　　An accurate understanding of inventory

　　Since China Automotive Technology and Research Center said that in the first half of this year auto stock increased by 1.28 million vehicles, rampant speculations of the media have made the consumers thought surged inventories would lead to sales promotions, which caused a wait-and-see attitude and the car sales was affected. There are two types of inventories: factory inventory and dealer inventory. Factory stock number = previous accumulated inventory + the current inventory. The current inventory ≈ production – wholesale volume. Under this model, normally, the factory inventory is 0.4-0.6 of average monthly sales, 0.6-0.8 is relatively high, > 0.8is quite high and 0.3-0.4 is relatively low. As the top-selling cars always have no inventory, factory stock is usually close to 0.4. Dealer inventory = previous accumulated inventory + the current inventory. The current inventory ≈wholesale volume–retail volume. Normally, to distributors, the inventory is 0.8-1.2of average monthly sales, 1.2-1.5 is relatively high, >1.5is quite high and0.6-0.8 is relatively low. At present, the total dealer inventory is relatively high. If the annual sales grow by 1 million, stocks should increase by 7-10 million. At the beginning of the year, the total stock of China auto is quite low. As the growth rate is slowing down, it is normal for the inventory to get raised. However, it is true that the inventory increased is less than 800,000.

　　China Automotive Technology and Research Center has boasted that their prediction is accurate. However, in the first half of this year, the vehicle production released by Bureau of Statistics was 9.08 million while China Automotive Technology and Research Center was 8.93 million. If we take the data released by Bureau of Statistics as a standard, China Automotive Technology and Research Center made the maximum error. China Automotive Technology and Research Center can not ensure factory inventories as they did not know wholesale numbers while China Association of Automobile Manufacturers has advantage in this aspect. Since car sales only accounted for 79-86% of production, more than 100 billion Yuan has been occupied, as a result, in the first half if this year, both manufacturers and dealers would have suffered a loss. However, actually in the first half, the profits of manufacturers of have been doubled year on year. In China, besides China Association of Automobile Manufacturers, no organization has retail statistics. During the first half passenger car inventory has grown by 600,000at most. Dealer inventory number is confidential manufacturer data. In the foreign countries, this data manufacturers reported to statistical units authorized by the state are also confidential and only used for industry analysis. The detailed summary of the data will not be feedback to the manufacturers. On the basis of international practice, car sales are calculated according to the terminal volume. Since China’s political reform lags behind economic reform, there lacks inventory number and the domestic terminal sales statistics, which always leads to media speculations.

　　The vehicles armed police, military, airports, docks and large mines don not need to get registered. Therefore, the number of terminal sales and the registration has a margin of about 3-8%. Wholesale number is higher than terminal sales volume is because the former includes as exported number, terminal sales and dealer inventory variables. It is wrong to take the registration number as terminal sales as it is only used for market distribution analysis. Only when the data channel, time period and data definitions are consistent, the statistics and analysis can be carried out smoothly. Most of reports about the inventory disobey this fundamental economic principle, which lead the wrong conclusion. In fact, manufacturers do not force the dealers to keep so many inventories. Without benefits, dealers will never do this as well. During these two years, in auto market has gained a net increase of 8 million. This year, as manufacturers require expanding greatly marketing outlets, many dealers suffer funding constraints, therefore, a part of the dealers who have a bad operation and performances complain about the heavy inventories. At present, China Automotive stock is slightly better than the beginning of 2004 and the end of 2008, slightly higher in the lower limit of the total inventory. Specifically, the total inventory of joint ventures is normal while that of domestic enterprises is relatively high.

　　Comment on Toyota recalls

　　In 1986 U.S. CBS, reported and strongly criticized “suddenly acceleration fault” of the German Audi cars. Later it was confirmed the “suddenly acceleration fault” is the result of misuse, but Audi was driven out of the U.S. market for many years. This time, the recalls of Toyota are duplicates of Audi unjust case. Recently the National Highway Traffic Safety Administration has carried out of a number of investigations on the Toyota electronic throttle control system, no defects have been found. “Suddenly acceleration fault” is only because driver mistake the brake for throttle! In this farce, China followed the United States, the CEO of Toyoda came to China apologize, but was not received by the central government, which indicates that Chinese are more kind. However, many people do not understand the truth. There is a report “Zhejiang Trade and Industry Bureau win compensation after difficult negotiations”, introducing the American approach to China! Even some civil servants have been fooled by United State; some even suggest revise the provisions of defective automotive product recalls. The media and Internet users are even more emotional. Actually, how to improve national quality is worth serious reflection!

　　(Translator: Yalong/Jessie)

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