SUVs are hot sellers in China this year

SUVs are hot sellers in China this year

China's car market rose for a fifth consecutive month in July, as a number of manufacturers accelerated deliveries and dealers offered discounts to reduce inventory.The latest data suggests that car demand in China continues to run ahead of expectations, though the outlook is for a moderation of growth in the second half and a possible market contraction in 2017.

Bloomberg reported that retail sales of cars, sport utility and multipurpose vehicles climbed 23% to 1.6m units last month, according to the China Passenger Car Association. Deliveries increased to 12.4m units in the seven months through July.

Bloomberg noted that dealers in China have been offering discounts of almost 20% to shift stocks in China's slowing economy. The government's purchase-tax cut on vehicles with smaller engines is also stimulating demand for compact and mid-size SUVs.

"It's very positive," Steve Man, an auto analyst at Bloomberg Intelligence, said of the drop in inventory levels. "If we do see an improvement in retail sales at the end of this year before the tax cut ends, we might see automakers in a better position to increase production and we'll see an improvement in their earnings."

Deliveries for GM increased 18% to 270,529 units in July, while  Ford's rose 15% to 88,189 vehicles. Toyota sales gained 5.7% to 97,700 units.

Guangzhou Auto's sales increased 37% to 131,034 units, with its SUV deliveries doubling to 64,814 units. Great Wall surged 49% to 67,295 units, while Geely climbed 72% to 46,319 units.

Shift to SUVs

The market shows a clear preference for SUVs – especially compact models with tax-efficient engines - over cars/sedans. SUVs accounted for around 50% of total passenger vehicle sales in first half of 2016, compared to just 22% for the whole of 2013. Analysts at LMC Automotive says there is is "no doubt that the SUV segment has generated both volumes and profits for Chinese automakers. One such brand, Trumpchi, saw a profit in excess of CNY1 billion in 2015, driven by the phenomenal success of its GS4 SUV."

According to LMC Automotive,  the SUV segment sustained its upward trajectory in the first half, growing at 36.2%, ahead of the MPV segment, which grew by 19.5%. The Car segment, meanwhile, declined by 3.9% in the first half of the year, according to its analysis.

LMC also says that local Chinese brands performed exceptionally well in the opening six months of 2016, with overall growth of 50%, as they targeted the SUV sector with new models. It also said the compact and sub-compact SUV sub-segments, benefited from rising demand in China's lower-tier cities. Non-premium brands were also at the forefront of the SUV segment, thus bolstering their market positions, with growth amounting to 28% in total. Looking further ahead, the SUV sector is forecast to continue to flourish for the next two years at least. LMC maintains.

LMC also says hybrids are a bright spot in the Chinese market. The hybrid versions of the Toyota Corolla and Toyota Levin, for example, saw combined sales of around 33k units in H1 2016.

Market slowdown anticipated

This year, the Chinese car market is seeing growth boosted by the purchase tax reduction that expires at the end of the year. Market observers and participants have cautioned that the outlook is for slower sales. Volkswagen Group's China head recently warned that China's overall passenger car market would see slower growth in the second half of 2016, with the expiry of tax breaks possibly hitting the company's China sales in 2017 (especially of there is a big pull-forward of sales ahead of the expiry of tax breaks).

Auto market intelligence
from just-auto

• Auto component fitment forecasts
• OEM & tier 1 profiles & factory finder
• Analysis of 30+ auto technologies & more