China auto market likely to slow after record 2009

• Source: Gasgoo.com
• [13:27 October 14 2009]
• Comments

Chinese car sales soared to a record in recent months on government incentives, but the same money tap that turbocharged sales could easily be turned off in 2010 if Beijing frets about an overheating economy.

China's passenger car sales in September rose a hefty 83.6 percent from a year earlier, with just over 1 million cars sold in the month, the China Association of Automobile Manufacturers said on Tuesday.

Earlier in the day, China's biggest automaker, SAIC Motor Corp, also said sales were racing ahead, up 47 percent in the first nine months from a year ago.

To view a graphic on China's auto sales this year, click on: here

The strong sales followed similar reports in recent days from most of the industry's top players, including Geely Automobile, Dongfeng Automobile and the China units of General Motors and Volkswagen.

Everyone has benefited from government policies supporting domestic consumption as part of Beijing's multibillion-dollar stimulus program in the global downturn.

In January, China's auto market overtook the United States as the world's largest, and has been a leading bright spot in the struggling global auto industry this year.

Analysts said the loose money policies that have propelled the industry are set to continue at least till the end of the year.

"Auto sales rely heavily on policies, just like the stock market. It's hard to predict sales outlook for next year as we don't know whether the government would renew the tax cuts for small cars after they expired at the year end," said Qin Xuwen, an analyst with Orient Securities.

"If they indeed cut sales tax on mid-range sedans next year as many had hoped, it could be another bumper year ahead," he added.

ROAD AHEAD

All of China's publicly traded domestic car makers are likely to give some outlook for the rest of the year when they report third-quarter results in the next few weeks.

But regardless of how they end the year, companies are likely to see their sales growth cool down in 2010, said Ji Junfeng, an analyst with Changjiang Securities.

"They're not likely to see a repeat of the explosive year-on-year growth in car sales in 2010 as the comparative base will be much higher," he said.

"It's true that government policies have helped push up auto sales this year, and weak demand in 2008 also played a role in it."

The strong growth has also turbocharged profits and shares for Chinese automakers, which are required by the Shanghai Stock Exchange to announce if their profits will rise or fall by more than 50 percent in any given period.