We are well past the mid-year point and it’s time to both reflect on what has transpired over the first half of 2019 for the auto market and what future holds for the rest of the year.
The big picture is that auto sales in June dropped for the 12th consecutive month since July 2018 in what has been a record string of consecutive monthly sales declines never before seen since sales data became available in the early 1990s.
There were nevertheless winners and losers. The big winners were Japanese brands like Toyota, Honda and Lexus which saw double digit positive growth despite the overall slowdown, as well as Volkswagen and the German luxury brands, who grew market share despite sales declines. The big losers were the American and French brands with disastrous performances by PSA brands of Citroën and Peugeot as well as Renault, and Ford, Buick, Chevrolet and Jeep. Pretty much all Chinese brands saw negative growths for the first half of 2019 with notably Geely cutting its annual sales target of 1.51 million units by 10 percent to 1.36 million units and warning that first-year profit would drop by 40 percent.
While the year-on-year negative sales growth in June tapered off a bit mostly due to the China 5 to China 6 emissions standards transition – a little over half of the Chinese market by sales volume introduced the new standards in July well ahead of the national deadline a year later – which meant dealers discounted China 5 vehicles and pushed them to market, dealer destocking will continue to be a new business reality as some of the 2018 sales were pulled forward by the sales tax incentive that ended in 2017.
It is interesting to look at some of the numbers published by the relevant ministries and commissions aside from the official production and sales figures published each month by China Association of Automobile Manufacturers (CAAM), which we reported in our previous issue.
The Ministry of Public Security said earlier this month that China registered 12.42 million new vehicles in the first half of 2019, down 1.39 million units. That is yet another indication of the severity of the downturn.
The auto industry’s industrial output value dropped 2.5 percent in June and was off 1.4 percent over the first half of 2019. Automobile production dropped 14.2 percent through to June with car and SUV production off by 16.1 and 18.7 percent respectively, while NEV output growth tapered off to just 34.6 percent, according to the National Bureau of Statistics. June retail sales of automobiles were notably up, by 17.2 percent to ¥366.9 billion, but first half sales grew just 1.2 percent to ¥1.91 trillion.
The current market is both down and distorted with the ongoing emissions standards switchover and various government “rescue” measures still yet to take positive effect.
Our view is that with an already lower base to compare, the market in the second half of 2019 should fare better than the first half, which should help improve negative growth from double digits to possibly high single digits, but well above CAAM’s prediction of a 5 percent decline.
Brace for a record year of sales drop in 2019 as far as volumes are concerned: auto sales could be in danger of falling to 25 million units.