The “China Slowdown” is running right behind the Europe morass and the U.S. fiscal cliff have been the big news for the US market. Now, August sees the China auto market rate of growth slow again, growing concern for automakers. Here are a couple of thoughts on the impact on global Auto OEMs:
The biggest concern I’ve heard is over Toyota’s two months of decline in the market; -15% for August after a -5% in July. Toyota says this is more a technical issue resulting form unseasonably big increased in July and August 2011 as it ramped local sales back up after the Japan crises. Both Toyota and local dealers dismissed suggestions that local pushback on Japan-China politics was not hampering sales. Overall, Toyota sales are up more than 13% year-to-date. This is in line with the company’s targeted 11% growth to reach 1 million unit sales. My opinion is that while Toyota and FAW Toyota sales have normalized, and the brand will outperform the market going forward.
Nissan on the hand is more cautious on the impact of the geopolitical row as tensions have risen over the two nations’ decade-old dispute over islands in the South China Sea (Senkaku/Daiioyu). CEO Carlos Ghosn lamented in a recent CNBC interview that the Dong Feng Nissan has not been able to hold large-scale sales events due to public disorder. I’m not sure if this true, or if Ghosn is just buying himself some cover for sales slowdown, but if it is true, the recent launch of local brand Venucia brand should be useful in the future. Nissan sales rose only 0.6%, however, if we recall, they had strong sales in 2011, with less production disruption in China than either Toyota or Honda last year. Ghosn has targeted 1.5 million units of sales in China for 2012 as the company is putting 10 new models in the market. That leaves an aggressive outlook for Q4 with Nissan looking for +200K units over last year’s Q4 retail sales of 312 thousand. Overall, Nissan will probably miss the volume as they are +10.4% on on car sales (counting LCV, they come pretty close), and hopefully won’t chase the number with big discounting moves.
Speaking of discounting, some “well-known brands” have been pointed out to be offering “for sale” offers according to Zhang Xin, an industry analyst at Guotai Jun’an Securities in Beijing. GM sales were up 7.3% in August, and all brands are up 11.2% year-to-date.
Among the smaller players, Ford saw a 40% jump in August with recent dealer expansion, yet remain at around market pace for the full year. Mazda on the other hand has seen sales decline since early in the year. Mazda was hit like all of the Japanese makers in the spring 2011 crises, but the company is now lagging in product and as some experts suggests marketing and sales execution in the market.
#2 VW’s sales remain well ahead of the market, +16.3% for the year. The German automaker generated almost one third of its operating profit from its China presence. The company expects growth for the year of around 10%, just ahead of the market — and is looking for high single-digit growth again next year. This outlook appears to be very reasonable for the number two player that has a broad lineup and strong dealer presence.
Overall, 6-8% growth for the year looks to be still on track, but go back to my previous comments that he big global players will outperform, probably with GM, Nissan, Toyota posting 10%+ gains.
As local brands compete to retain market share expect to see pricing pressure at the lower end of volume makes.
Smaller players are going to find it hard to keep up with the big boys and the market will be unkind to latecomers and those without a strong product plan.
While margins are coming down, I think we see the top players retain double-digit EBIT% while growing, but smaller players will be squeezed with this pace of growth.
Much of the capacity flowing in will meet the demand for profitable models, displacing the glut of aged local capacity. There is still a long way to go on modernizing capacity for a market that will be at 20 million units by the end of the decade. I’d rather be VW, Nissan or Toyota.
Luxury is a whole different story…..more to come…….