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NDRC’s “wild card” and auto market’s “thud”

We are almost at the half way point of 2019 and if the latest data from China Association of Automobile Manufacturers (CAAM) is any indication (see China auto sales down 16.4 percent, YTD sales fall 13 percent), the prospect of China’s auto sales falling by double digits for the year, which would mean a net decrease of about 3 million units, is not entirely out of the question.

It would be unprecedented.

That equates to about a full month of sales in good times.

Auto sales have fallen for nearly a full year since they first fell in July 2018. Even new energy vehicle sales, which have been unstoppable, took a “beating” in May. Sales were nearly flat at just over 100,000 units, bringing cumulative sales through to May to just over 460,000 units, at a slower growth of 41.5 percent.

There are not that many positive factors right now for the auto market. The economy continues to be gloomy with inflation becoming an issue: May CPI rose by 2.7 percent buoyed by rising prices for food (up 7.7 percent), especially those of pork and fresh fruits. The transition from China 5 emissions to China 6 emissions in some cities and regions of China a full year ahead of the national implementation deadline of July 1, 2020 is wreaking havoc among automakers and dealers, while consumers continue to be puzzled by the changeover and remain in a “wait and see” mood and mode.

In comes another rescue from the National Development & Reform Commission (NDRC).

A new guideline aiming to lift restrictions on NEVs and possibly those of traditional vehicles, which still account for more than 95 percent of auto sales (see NDRC deals another “wild card,” says no to NEV restrictions) should at least help stabilize the momentum for NEV sales, which are forecasted to reach 1.6-1.7 million units this year. The new NDRC guideline came out on June 6, just a few days after Guangzhou and Shenzhen, which currently have vehicle registration restrictions in place, announced to increase quota by a total of 180,000 units from June 2019 to the end of 2020 on top of the current allowance.

It would be interesting to see how Beijing and Shanghai, the other tier-1 cities that currently have restrictions in place through either limited license plate bidding or lottery, heed NDRC’s call, if at all. But whatever Beijing and Shanghai do, it will unlikely alter the national sales trajectory.

The biggest “wild card” within NDRC’s “wild card” guideline is whether cities that currently have vehicle purchase restrictions in place will open it up and enact rules limiting their usage rather than purchase, and whether families that do not yet own a car can purchase an NEV outright.

How the market trajectory will fare in the second half of 2019 will depend on these factors. Once the effects of the China 5 to China 6 emissions transition and new NEV subsidy transition subside, the market should stabilize as well.

Auto sales will fall for the second year in a row. It’s a foregone conclusion. Whether they fall by double digits or single digit will hinge on the effectiveness of factors above.

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