China’s auto sales remain in the slow lane

China auto Oct12.pngMark Twain, the famous US writer, put it well when he warned that:

“It isn’t what you don’t know that gets you into trouble. It’s what you think you know for sure.”

This has certainly been the case with auto sales in China. In 2010, leading analysts JD Power expected that “the pace of growth may slow in 2011 after the nation withdrew tax breaks and rural subsidies“. But they still forecast growth of “about 10% a year during the next 4 years.”

2 years later, the chart above highlights the level of over-optimism:

• 2011 sales (green line) saw zero growth versus 2010
• 2012 sales to September (red square) are up just 6%
• Even this growth is probably an over-estimate, as China counts sales at the point when cars leave the factory
• Normalised inventory levels would suggest sales could actually be down 6%

Of course, some still believe that everything will suddenly return to ‘normal’ when the new leadership is finally appointed. But China remains a very poor country, with 96% of the population earning less than $7600/year.

Thus the blog believes future growth will be focused on people trading up from motorbikes to Nissan’s $3k Datsun model. Until such cars are available, it continues to expect sustained growth to be hard to achieve.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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