From the Year of the Bull to the Year of the Tiger

By: Wayne Xing   2010-02-24

China has become the world's largest new vehicle manufacturing country with total sales surpassing 13.6 million in 2009. The Year of the Bull has rendered China's automobile market unprecedentedly bullish.

Automobile sales in January 2010 (which still falls into the lunar month of December) hit an all time record of 1.66 million units, up 124 percent from the same month a year ago, according to the latest data released by China Association of Automobile Manufacturers (CAAM). And passenger vehicle sales totaled close to 1.32 million, almost doubling those of the same month in 2009.

There is no doubt that the growing Chinese economy and the rise of per-capita income are the fundamental driving factor for market growth. But the January numbers are mind-boggling and seem too good to be true. Yes, one can argue that sales in 2009 and January 2010 are the direct result of super effective government stimulus packages of sales tax reduction on small-displacement vehicles, subsidies offered for rural residents and cash-for-clunkers subsidies.

According to Miao Wei, vice minister of Industry and Information Technology, the sales tax reduction on small-displacement vehicles in 2009 "boosted sales by more than 2 million units" and rural subsidies "boosted sales of micro vehicles by over 1 million units."

One can also argue that undoubtedly the growth momentum has been carried over from 2009 into January despite the slight rise in sales tax by 2.5 percent on automobiles of 1.6L engines and smaller. The high year-on-year growth rate was partially due to the more working days in the past January compared to January of 2009 when the country celebrated the Lunar New Year holidays.

The discrepancy has been revealed by industry insider Rao Da, secretary-general of China Passenger Car Association, who said that January numbers included those sold in December but unreported by a number of leading carmakers. "We had three less working days in January compared to December," Rao wrote in his blog on auto.sohu.com, "and it was simply not possible for carmakers to jack up January daily output capacity by 15 percent over that of December when most assembly plants were operating overtime."

Industry analysts believe that as much as 15 percent of January sales, or over 200,000 units, might have been unreported numbers from last December.

China is probably the most difficult market to make any accurate forecasts in terms of output and sales. When we said Happy New Year on the eve of the Year of the Bull, most automakers and analysts were predicting that sales growth in 2009 would be at best 10 percent.

It seems that we need to be more optimistic when the market is down, but alert for possible downturns when the market is up.

The unprecedented Bull's Year is coming to an end. As we wish all of you a Happy Year of the Tiger, let us watch closely how Tigerish China's auto market will be in the New Year!