“China sells a record 30 million vehicles in a single year.”
That statement seemed to be farfetched at the beginning of 2016. But with record sales in November and official announcement by the Ministry of Finance and State Administration of Taxation on December 15 that the tax break for 1.6L and below passenger vehicles will continue for another year at a lesser discounted rate of 7.5 percent (see LAWS & REGULATIONS on p. 7), that magic threshold is closer to becoming a reality, possibly as early as this year.
November vehicle sales hit a record 2.94 million units, the best monthly sales tally ever, according to data released by China Association of Automobile Manufacturers (CAAM) on December 12. That helped push sales over the first 11 months to nearly 25 million units, well past the total for 2015.
The industry will likely end the year with nearly 28 million vehicles sold, based on historical seasonality trends that December sales usually exceeding those of November. That means the industry will have added at least 3 million more vehicles in sales over 2015’s total of 24.5 million units, phenomenal considering the already high base number.
With the tax break continuing for another year, the market will likely experience the 27th year of consecutive growth in 2017 (yes, the last time auto sales fell year-over-year was in 1990). But there is no way that it can grow at double-digits again, like what has happened last year.
An official with the CAAM predicted at the 2017 China Automobile Market Development & Forecast Summit held in Changsha, Hunan Province on December 14 that had the tax break continued as is, auto sales would reach 29.68 million units in 2017, up 6 percent. If not, it would reach 28.56 million units, up 2 percent.
CBU/CAR believes the market will grow at most 5 percent in 2017 and reach close to 30 million units but not exceeding it. SUVs will continue to significantly outpace overall growth in the passenger vehicle sector at the expense of passenger cars. The industry landscape for 2017, as far as vehicle mix is concerned, will simply be 10 million SUVs, 10 million passenger cars and 10 million units of everything else.
The real question that automakers should start to ponder and plan is: what happens when the tax break ends on December 31, 2017 and goes back to the normal 10 percent rate on January 1, 2018? They better brace for the first year of negative growth in 28 years!