China market gains give auto industry a lift - Just Auto
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China market gains give auto industry a lift

09 Jun 2020

New vehicle sales in China rose by almost 12% year-on-year to 2.14 million units in May 2020, according to preliminary data released by the China Association of Automobile Manufacturers (CAAM).

This is the second consecutive monthly rise for the Chinese vehicle market, as it rebounds from sharp declines in the first quarter due to the COVID-19 coronavirus. Vehicle sales in April increased by 4.4% year-on-year, according to data released last month by the association.

The latest data, covering China’s passenger vehicle and commercial vehicle segments, brings the five-month cumulative total to 7.9 million units – still 23.1% down on the same period of last year.

The COVID-19 crisis has brought an unprecedented and sudden loss of sales around the globe. Automotive companies face a total hit to the market that will be greater than in the 2007/8 financial crisis.

GlobalData’s base COVID-19 light vehicle sales scenario forecasts a fall of 17.6% on 2019 to 74 million, with declines heavily weighted to the second quarter when population lockdowns were introduced across the world. For China, the forecast for the year currently stands at 22.1 million, 13% down for the full year.

The news from China shines some light in the gloom. May’s market rise over year-ago levels in China is very welcome to the auto industry, both inside and outside China.

China sales in the last two months were also driven by discounts and promotional activity, as well as incentives by local governments to help the vehicle market recover. The market rebound also reflects the fulfilment of pent-up demand from the COVID-19 ravaged first quarter. With that initial sales surge over, the market will likely slow in June.

Nevertheless, a return to growth in the world’s largest vehicle market will boost confidence in the auto industry generally. China was first into the COVID-19 crisis and first out of it, so developments in China’s economy are being watched very closely.

In our base forecast, measures to suppress the virus allow for vehicle market recovery around the world from the third quarter of this year onwards.

China’s return to growth is a portent of what should happen in other markets as the COVID-19 pandemic subsides.

A note of caution though. China’s rate of motorisation is much lower than that in mature automotive markets such as Western Europe and the US, which means demand can behave in a more ‘elastic’ manner. Also, virus suppression methods in China appear to have been relatively successful – more so than for some countries in the West.

The global public health crisis and its heavy impact on economies is far from over, but a return to vehicle market growth in China is, nevertheless, a positive sign.