By on May 11, 2020

Chinese auto sales grew 4.4 percent last month vs a year earlier, rising to 2.07 million vehicles, according to tabulations released by the government-backed China Association of Automobile Manufacturers (CAAM) on Monday. This is actually better than its preliminary assessment suggested, with the new figure helping put an end to a 21-month slump of declining automotive sales.

Unfortunately for the region, it doesn’t seem to be indicative of a full recovery. In its report, CAAM noted that the rebound may be only temporary. Last month’s figures were primarily elevated by commercial vehicles, which saw record growth at 32 percent (year over year). Passenger vehicles also saw their numbers improve from the month prior, but they still down 2.6 percent in April. The improvement is widely seen as the result of backlogged orders that couldn’t be completed during the most prohibitive period of the pandemic, as well as the Chinese Communist Party ordering more work vehicles to stimulate the economy.  

“We don’t see this month’s growth as a normal phenomenon, as the domestic epidemic eased and consumers delayed purchases until recently,” Chen Shihua, CAAM’s deputy secretary-general, explained. “It is difficult to guarantee positive growth in the coming months.”

As stated in our last assessment of the group’s sales estimates, it’s always worth taking official numbers coming out of China with a grain of salt. Government data shows markedly low Chinese unemployment right now, at just 6 percent; analysts say there’s little chance of that being possible after such prolonged and widespread lockdowns. Other nations imposing similar (or even less aggressive) viral countermeasures have seen unemployment rates reach double-digits numbers. Most believe the real unemployment rate in China to be around 15 percent.

A recent Wall Street Journal article, citing economists at Société Générale SA and UBS Group AG, estimated that about one-sixth of the population is currently unemployed inside the country. Meanwhile the automotive industry seems to have returned to some semblance of normalcy. Despite reports that many car factories and parts suppliers are not running at full capacity or with their entire staff, most now appear to be operational. Global manufacturers will likely still have supply chain concerns; problems that will undoubtedly persist as production ramps back up.

There has also been some souring on doing business in China, though this has not affected all car companies equally. While those that got into the market early via joint ventures (e.g. General Motors, Volkswagen) will likely continue their existing relationships, we’ve seen others backing off. Renault announced the end of its joint venture with China’s Dongfeng Motor Corporation in April. While the official reason given was so it could better prioritize electric vehicle production for the region, it has been looking to reduce production (along with Nissan) as part of its restructuring efforts.

China also seems to have hit is growth cap sooner than everyone assumed. Suzuki, which tends to thrive in developing markets and areas that appreciate low-cost, no-frills automobiles, bailed years ago after sales growth failed to manifest. It ended up letting Chongqing Changan Automobile build Suzuki-branded vehicles after backing out of the joint-venture in 2018.

There’s a growing assumption that Suzuki may have been the first of many, too. Despite most large brands taking a whack at the Chinese market, conditions have not been favorable for foreign entities. Most have been under a legal obligation to enter into joint contracts with established Chinese firms if they want to sell within the country in meaningful volumes. While not ideal, it was seen as a way to get into a lucrative market with seemingly unlimited growth potential. We’ve just spent almost two years learning that this isn’t the case.

Even before the pandemic,  analysts believed there would soon come a period where outside players operating in China would need to choose to either fully embrace the market or abandon it for greener pastures. The economic ramifications stemming from the coronavirus, will likely force that issue. While some have pointed to large automakers pulling out employees after COVID-19 was announced in China’s Hubei province as evidence of companies becoming cagey about doing business with the nation, it was a universal approach taken by all manufacturers — including ones we wouldn’t expect to snub China anytime soon. Predicting who bails next is probably more easily done by watching for future investments (or lack thereof). Based on the amount of time PSA Group spent in 2019 softening its relationships in China, it might be the next company to watch.

However, China’s recovery is viewed as heartening in the general sense. As the point of origin for the coronavirus pandemic, many believe its market improvements may foreshadow recoveries in other parts of the world. Of course, those assessments presume the data coming out of the country are reliable and ignore how much of an impact government purchasing played. But there are hopeful signs in the passenger market.

Sales of premium vehicles rose 16 percent in April, according to the China Passenger Car Association (CPCA). Meanwhile, sales of mass-market vehicles made by joint ventures that include foreign companies such as Volkswagen and GM fell by 5 percent. Chinese brands saw sales drop 14 percent. This mimics what we’ve seen elsewhere in the world, with high-end models maintaining their sales strength. Our guess as to why? The people who buy them are simply less affected by government lockdown orders.

Electric vehicles were the outlier here. Despite also having a tendency to go to well-heeled buyers, CPCA reported that new-energy vehicles (which includes EVs) fell 30 percent to 64,000 units in April. While an improvement from March’s decline of 49 percent and a 70-percent fall in February, it’s a poor performance for a country that has spent the last six months trying to re-incentivize their purchase after eliminating subsidies in 2019. CPCA also had a bleaker tally than CAAM, suggesting retail sales actually declined 5.5 percent in April.

[Image: Destinyweddingstudio/Shutterstock]

 

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6 Comments on “China’s Auto Market Revisited...”


  • avatar
    conundrum

    I didn’t believe the record low unemployment figures in the US before the pandemic, either. It only made sense if you din’t count the people who simply gave up looking for a job after the 2009 recession. Baruth had an article on this seven or eight years ago as he surveyed a decimated landscape. You read about whole swaths of Appalachia essentially dead in the water, and human excrement on the sidewalks in San Fran, Portland and Seattle. Place is going third world because you don’t look after your own. Good jobs paying a living wage to millions have been sacrificed to a gig economy and people having two jobs to get by, so that outsourced product can be sold at huge markups to benefit a few fat cats. The American Dream. Read in the Atlantic about billionaires roughing it in the Hamptons and Miami Beach, if they aren’t quite billionaire-ish to afford $500 million private yachts to moor off Caribbean islands. Sweat the virus out away from us, peons!

    If 80 million Chinese is one sixth of 1.4 billion, I’m a Dutchman. The business of 50/50 partnership on factories with foreigners in China has been the rule since Moby Dick was a minnow. However, right on these hallowed TTAC pages, you covered the relaxation of those rules that began to happen in 2019 before the current, er, “situation”. BMW was all set to buy out its partner, for example. Not likely to happen for a while now.

    Americans would do a lot better digging themselves properly out of their current own pandemic hole before heaping scorn and deriding statistics from other countries. Because it doesn’t matter a good god dam in the scheme of things. It’s just donkeys braying nonsense. To what end, who can guess? War? For what reason that makes sense? All I see from the US is utter lunacy. I don’t know what the Chinese are saying because it never gets printed or shown in our newsfeeds. Of course not — it might make sense, who knows?

    Now here’s some real Chinese bad form. It happens that the world supply of wood pulp for N95 masks is sourced from a certain part of British Columbia and certain tree types. For the geographically-challenged, that’s a part of Canada. The pulp and paper company that provides it is a worker’s co-op, oh no socialist commies!, that bought out the owners and turned the plant into a going concern from an essentially bankrupt entity.

    This is where 3M sources its materials to make proper N95 masks. When Trump decided to stop 3M from shipping a previous order of N95 masks to Canada, he got advised of a few home truths and the order went through. But we need more masks here in Canuckistan, so our dumbo federal bureaucrats ordered some from China, when they might have read the news about the pulp sources like me, and had a, you know, bit of a think.

    The Chinese masks arrived last week, and all failed to meet specs. What a surprise, ha ha. Just as bad as those free ones China donated to Canada six weeks ago in response for some real ones we sent them for free before CV-19 really hit here, but Wuhan was in lockdown. Christ knows what the Chinese make their “N95” masks out of. Old rice husks, probably. It sure isn’t good old Canuck specialty wood pulp.

    China has always struck me as the wild west so far as business goes, but our corporate betters gave them all the orders anyway over the past three decades, while our North American manufacturing sector got decimated in everything but high tech and weaponry, still using Chinese chips though in many cases. Let’s shoot ourselves in the foot for big bucks! Even our drug manufacturing was outsourced for super profit.

    China is about as commie as Rockefeller was 150 years ago. It’s an autocracy monopoly that gave itself the mantra of Mao Communism to persuade its citizenry it cared about them. Just came at it from the opposite end of the stick from the US, where any resemblance between actual democracy for the average person and reality of life is just as tenuous. Business runs both places. And a spying police state enforces conformity.

    If there’s one home truth we learned in Canada from this pandemic, it’s this: don’t trust the big boy countries. They’ll skewer you every time for fun and profit. Time to make ourselves somewhat more self-sufficient again. This free trade horse manure hasn’t exactly panned out all that well for us. With Mexico taking all the automobile plants and the country essentially being turned back into a supplier of bulk ore, oil, pulp and with independent manufacturing gone, we’ve been sacrificed to make rich people richer. Much like the USA, but worse.

    The dopes from the far right AND the far left are all going on about Covid-19 being nothing more than a bad cold, and no worse than seasonal flu just based on numbers. I guess the lockdown has actually worked its magic, or it would be worse. Does anyone know anyone who got the regular flu this year? No? Bueller?

    Does anyone teach logic to the terminally idiotic these days? Or was that a passing phase like degrees in basket-weaving?

    Spare me the utter nonsense and get a life. Stay safe.

  • avatar
    thornmark

    >>I guess the lockdown has actually worked its magic, or it would be worse. Does anyone know anyone who got the regular flu this year? No? Bueller?<<

    the lockdown was never about decreasing mortality – it was about "flattening the curve", meaning spreading out the infection so the health care systems was not overwhelmed

    the mortality would be essentially the same

    as for the flu, there is a huge decrease because of the widened loosened definition of Covid 19 can include what would be termed flu deaths in the past plus many other conditions. So the decrease in flu cases is not what you imply.

    btw, there will be no vaccine, Fauci promised a SARS vaccine 17 years ago and NOTHING – corona viruses mutate – last count there are 30 mutations of what came out of Wuhan

    most of the virus spread in the US came from NY, where until today the governor was pushing covid positive patients into nursing homes because of "the law" – which was actually an executive order he made. Half the deaths in NY have been in nursing homes.

    Herd immunity will end it.

  • avatar
    thornmark

    btw, the ChiComs lie. That’s what they do.

    Recovery? They lie. They have a Potemkin economy which will probably fully collapse in the next few years.

  • avatar
    Arthur Dailey

    My goodness, 2 commentators (Conundrum and Thornmark) and both of them posted sensible statements. Maybe there is still some hope?
    Agree 100% with Conundrum.
    Regarding Thornmark, the USA was a major source of infection for Canada. In particular it seems that some returning from Vegas brought it with them. New York has the most cases due to demographics, but it was not the original primary source for infections/spread.

  • avatar
    Duaney

    I seriously doubt that there are any Americans who give a damn about the Chinese car market. And until China eliminate’s their filthy wet markets and unsafe viral labs, I think America should disengage from China as much as possible. American factories in China making PPE supplies, which China didn’t allow these companies to ship their own products to the United States, should exit China as well. Without the American market to purchase Chinese good, China would be 1/10th the economic power they are. They enriched themselves from America.

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