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The darkest hour

When it rains, it pours.

Another disastrous month for the auto market has gone by without much signs of any turnaround.

Auto sales in April fell for the 10th month in a row since last July, according to data released by China Association of Automobile Manufacturers (CAAM). Less than 2 million vehicles were sold in the month, representing almost a 15 percent dip, with passenger vehicle sales falling even faster at 17.73 percent to just 1.58 million units. Even new energy vehicle sales “took a beating,” rising just 18.15 percent to just under 100,000 units. Through to April, auto sales were down by more than 12 percent to 8.35 million units, while NEV sales rose at a slower pace of just under 60 percent to 360,000 units. At the current rate, auto sales could fell to just above 25 million units for the year!

According to the latest industrial production and retail sales data released by the National Bureau of Statistics on May 15, the auto industry was the ONLY industry among 41 key industries with a negative growth in industrial added value for the first four months of the year. The automobile was also the only consumer product among major consumer products to have negative growth in retail sales in the same period, dropping 3.1 percent to ¥1.22 trillion. By the Bureau’s measure, auto output fell 15.8 percent in April, while NEV production rose just 17.1 percent. Car and SUV production fell 18.8 and 21.7 percent, respectively.

You get the picture: China’s auto market seems to be facing its darkest hour yet. In the words of a senior executive in charge of operations of a major European supplier: “I have never seen the market slide like this in my entire career.”

Almost all brands – be it foreign or domestic, with the exception of perhaps Toyota and Honda who were bucking the trends – are experiencing sales drops. Even Geely saw a sales dip in April and recently announced a measure asking employees to voluntarily “adjust” their compensation. Groupe PSA, with its Citroën and Peugeot brands, for example, reportedly sold less than 10,000 vehicles in April, in sharp contrast to Lexus, which sold more than 20,000 vehicles in the month, as a pure import brand! Chinese brands like Chang’an, JAC and Haima in the rear of the pack are seeing dangerous low levels of sales. Haima, who is contract manufacturing Chinese smart EV startup Xpeng Motors’ G3 electric SUV, is reportedly selling housing assets to stay alive. And just as I am writing this, another NIO ES8 has caught fire in Shanghai, less than a month after an ES8 was burned down completely. The investigation of that first fire still hasn’t concluded and NIO stock is probably going to take a beating as senior execs prepare to report Q1 2019 financial results on May 28.

Every company has its own hard nut to crack, it seems.

The reluctance to buy on the end consumers’ part despite the VAT reduction that went into effect at the beginning of April and the recent launch of numerous new models on the market since Auto Shanghai 2019 stem from lack of disposable purchase power from people from private enterprises and those in third and higher-tier cities, according to an industry analyst at a recent industry forum. Complexing the matter is the upcoming implementation of China 6 emissions standards in numerous cities starting on July 1, which have further boiled the “wait and see” sentiment.

The same executive from that European supplier told me that their strategy is outperforming the market.

That probably is definition of success in the industry for now. If you can grow your market share despite a sales drop or outperform average industry growth, you are at least better off than others.

The consensus from many executives I spoke to at the recent Shanghai Auto Show was that the market will rebound in the second half of the year. I’m not so sure how much rebound, if any, will actually occur.

Auto sales in 2019 will fall for the second year in a row and some brands are in serious trouble. It’s a question of how much and who, not if. I am sure of that.

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