China's automotive market continued its blistering pace into the third quarter of the year, with October light vehicle (LV) sales up 69 percent year-on-year.
Growth dropped slightly from September, which was up 75 percent, but we expect to maintain these levels for the closing two months of 2009.
Total demand for LVs rose to 1.17 million units in October, including 812,000 passenger vehicles (PVs) and 363,000 light commercial vehicles (LCVs), up 68 percent and 71 percent respectively.
Adjusting for seasonal differences, the annualized sales rate in October was 15.7 million units, a new record high for China and the first time the rate exceeded 15 million.
The year-to-date sales rate is now 12.7 million units, considerably higher than the total light vehicle sales of 8.8 million units sold in 2008.
While most brands reported strong year-on-year growth in October, market shares are shifting a bit.
The top five passenger car brands remain the same as last year, but they accounted for a slightly smaller portion of the overall market, some 41 percent of sales through the first 10 months, compared to 43 percent in 2008.
Last month, the big five had just 39 percent of total sales in their sector.
Most of the lost share went to BYD, which has gained 2 percent in 2009. Other Chinese players are also achieving rapid growth.
Lower prices for domestic models, while important, cannot be considered the only factor in their rising prominence.
Widespread networks in secondary cities and rural areas, big product launches and dealer management systems more localized than many international brands are also factors in their growing success.
Yet we need to be cautious on the outlook for these local companies, as problems with quality, dealer management and product planning can mount when businesses grow at such a rapid pace.
The rise of domestic brands has also had an impact on the average selling price of passenger vehicles, which in major cities is now around 2 percent lower than a year ago.
There are also fewer incentives reported on the hot-selling models, particularly for SUV and compact car models, given the strong demand and back orders.
Expanding product portfolios of the local brands are forcing global players to introduce new low-end models or variants of existing models with lower configurations to compete.
In contrast to the PV market, year-to-date share of the top five LCV brands rose from 62 percent in 2008 to 67 percent in October. Wuling still leads the market, with nearly a quarter of total LCV sales.
The Chang'an Group, currently the second-largest LCV maker in China, is expected to soon challenge Wuling for the top spot after acquiring several subsidiary companies of China Aviation Industry Corp in November, including Hafei Motors, Changhe Automobile and Dong'an Auto Engine.
With a compatible product portfolio, the Chang'an Group get not only the capacity of the other companies but also their large customer bases. The merger will essentially turn the LCV market into a duopoly, making it extremely difficult for other smaller companies to compete and survive.
Stimulus policies, a key factor in the growth of the vehicle market this year, will continue to affect the outlook through the short to medium term.
Although official policies are not yet announced, the assumption is that the Chinese government will extend the existing incentives or introduce new plans to support the automotive industry over the next year.
We expect sales to remain buoyant in 2010, with a potential slowdown postponed to 2011. In light of this new development, we have raised the forecast for light vehicle sales next year to 13.6 million units, up 6.6 percent from 2009. Passenger vehicles sales will grow 9.6 percent to 9.3 million units, while light commercial vehicle sales remain flat at around 4.2 million units.
The author is a senior market analyst of JD Power Asia Pacific Forecasting (Shanghai)