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China Auto Sales Approach 2-Yr High

Zacks Equity Research

According to the China Association of Automobile Manufacturers (:CAAM), passenger vehicle sales in China went up 8.2% to 1.79 million units in November, driven by steep discounts to tighten inventory by dealers at the end of the year and strong pent-up demand. It was the highest sales in almost two years. In the first 11 months of the year, sales grew 4% to 17.5 million vehicles in the country.

Wholesale deliveries (including multipurpose and sport utility vehicles or SUVs) rose 8.75% to 1.46 million units while deliveries of commercial vehicles escalated 5.6% to329,700 units in November. Dealer inventories fell 2.8% to 777,500 vehicles from October due to rising discounts, according to CAAM.

Sales of SUVs – the fastest growing class of vehicles in China – spiked 18% to 189,200 units in November. Meanwhile, the same in the first 11 months of the year swelled 26% to 1.79 million units.

Sales of Japanese automakers plunged (36.1%) on a year-over-year basis triggered by the conflict between Beijing and Tokyo over a group of uninhabited islands in the East China Sea that led buyers to avoid purchasing their vehicles.

Their market share dipped to 16.6% in the month under study from 17% in October and 19.4% at the end of 2011. However, sales of Japanese automakers improved by 72.2% from October to 170,200 cars, showing signs of recovery.

Nissan Motor Co. (NSANY) – which occupies the biggest market share in the country – posted a 30% fall in sales to 79,500 units during the month. Meanwhile, sales at Honda Motor Co. (HMC) shrank 29% to 41,205 vehicles and Toyota Motor Corp. (TM) ebbed 22% to 63,800 vehicles.

The non-Japanese automakers have benefited from the plight of Japanese automakers in China during the month. Most of their sales improved during the month.

General Motors Company (GM), the biggest foreign automaker in China, registered a 9.7% growth in sales to 260,018 vehicles, driven by impressive sales of Chevrolet and Buick brands. Ford Motor Co. (F) sales jumped 56% to 67,505 vehicles during the month.

Among the major European luxury automakers, sales of Bayerische Motoren Werke AG (“BMW”) sprang up 62% to 31,090 units while sales of Daimler AG’s (DDAIF) Mercedes- Benz slid 6.6% to 16,876 vehicles.

Auto sales in China had grown at a double-digit pace since 1999, except in 2008 when the global economic crisis crept in. In 2009, China overtook the U.S. as the biggest auto market in the world by sales volumes when the Beijing government introduced a stimulus package, including tax incentives for small cars with engine sizes of 1.6 litres or smaller.

However, the incentives were scrapped last year and the Beijing government imposed quotas on new car registrations in order to control the traffic congestions. As a result, new car deliveries plummeted 56% to 403,500 units in 2011.

Nevertheless, China’s automotive industry outlook is promising in 2012 and beyond. According to CAAM, passenger car sales in 2012 is expected to grow by 9% in the country, which is much higher than 2011 (2.5%).

Most of the industry experts expect a double-digit rise in sales in 2013. Total sales may surpass 20 million vehicles during the year.

Auto sales in the U.S. grew 15% to 1.14 million vehicles or 15.5 million on a seasonally adjusted annual rate (:SAAR) basis in November, driven by strong pent-up demand generated from Hurricane Sandy as well as from the aging vehicles, and improving macroeconomic conditions. It was the five-year high sales recorded by the industry since 2007.

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