China's auto sector growth decelerates

Purchase restrictions weigh on demand; green cars outperform

China's auto output and sales both witnessed a slower growth in 2014, an industry association said Monday, forecasting that the weak growth momentum will continue in 2015 amid economic slowdown and purchase limits in some cities.

Total vehicle sales hit 23.49 million units last year, up 6.9 percent from a year earlier, compared to 13.9 percent seen in 2013, while output increased 7.3 percent to 23.72 million units in 2014, down 7.5 percentage points from a year earlier, according to the China Association of Automobile Manufacturers (CAAM).

The sales growth is lower than the CAAM's earlier expectation of 8 to 10 percent for 2014.

However, China remained the world's largest auto manufacturer and market for the sixth consecutive year in 2014, despite the slowdown.

"The auto market's slowdown is mainly due to China's overall economic slowdown, sluggish sales of commercial vehicles, and the high base effect of 2013," Shi Jianhua, vice secretary-general of the CAAM, told a press conference in Beijing on Monday.

Sales of passenger cars, including sedans, SUVs and MPVs, grew by 9.89 percent year-on-year to 19.7 million units in 2014, while sales of commercial vehicles fell by 6.53 percent from a year earlier to 3.79 million units, according to the CAAM.

"News reports and rumors about local governments' limits on car purchases led to panic buying and helped boost passenger car sales in some cities such as Shenzhen and Nanjing," Zeng Zhiling, director of LMC Automotive Asia Pacific Forecasting, told the Global Times.

New-energy cars outperformed thanks to a batch of policies to support the development of the sector. The sales of new-energy cars surged by 324 percent to 75,000 units in 2014, data from the CAAM showed. And Dong Yang, secretary-general of the CAAM, expects the figure to at least double in 2015.

In December alone, both auto output and sales hit monthly record highs of 2.29 million units and 2.41 million units, the CAAM data showed.

"December is always the peak month for auto sales in China, and Shenzhen authorities' swift implementation of car purchase restrictions in late December had also inflated sales in the preceding period," Wu Shuocheng, a senior analyst at industry consultancy Menutor Consulting Shanghai Co, told the Global Times Monday.

The CAAM predicted auto sales will grow at a slightly higher pace of 7 percent year-on-year to 25.13 million units in 2015.

"China's government vehicle-use reform and elimination of 'yellow label' vehicles [which fail to meet domestic fuel standards] will increase demand for new cars," Shi said. "But limits on car purchase in some cities will have a negative effect on the healthy development of the car industry in China."

So far seven Chinese cities including Beijing, Shanghai and Tianjin have implemented restrictions on car purchase. Industry experts predict some second-tier cities with serious traffic jams and pollution, such as Chengdu, capital of Southwest China's Sichuan Province, Qingdao, East China's Shandong Province, and Wuhan, capital of Central China's Hubei Province, may also follow suit.

"China's auto sales are not likely to return to the double-digit growth after years of rapid expansion," Wu said.

The industry has also been struggling with rising inventories. According to the CAAM, the country's car inventories rose by 27.1 percent year-on-year in 2014.

"The inventory at car dealerships in China has hit a record high, and the inventory at manufacturers has also risen after their over-optimism about the market," Zeng said.

Foreign brands remained in a dominant position in China's auto market last year. Domestic passenger car brands accounted for merely 38.44 percent of the market share in 2014, 2.14 percentage points lower than that in 2013, the CAAM said.

Dong from the CAAM expects the market share of domestic brands to continue to decline in 2015. But he said the decline was more because of Chinese consumers' preference for foreign brands instead of weakness in homegrown auto brands.

But analysts said domestic auto brands are still lagging behind their foreign or joint-venture rivals in terms of comprehensive competitiveness.

"Many domestic car brands focused too much on marketing and branding, and neglected research and development for new models," Zeng noted.