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China carmakers to continue to face rough road

The market share of domestic-brand four-door vehicles hit its lowest point in at least five years in July, even as China’s overall vehicle production and sales maintained stable gains.

Analysts said that domestic brands face increasing pressure from their foreign rivals, because the government is unlikely to announce any policies that would favor the nation’s vehicle makers.

“The tough situation that domestic automakers now face can be compared with that in 2008, before the financial crisis engulfed the world,” said Dong Yang, deputy chief of the China Association of Automobile Manufacturers.

Domestic brands got a lifeline during the global downturn from government subsidies for rural buyers and lower consumption taxes on cars with smaller engine displacements, Dong said.
A man looks at vehicles at a car market in Beijing. (Bloomberg)
A man looks at vehicles at a car market in Beijing. (Bloomberg)

However, “their competitiveness did not improve. Thus, their position in China’s automobile market is now even lower.”

He said domestic brands had also lost market share as foreign producers and joint ventures moved into all segments, especially in the compact and smaller car markets, which were dominated by Chinese brands in years past.

“If they don’t make huge efforts to improve the quality of their products and improve their reputation, domestic brands will continue to experience weak demand because the government won’t launch any support policies in the short term,” said Dong.

In July, the total sedan sales of domestic brands declined 15.74 percent month-on-month to 195,800 units, although sales did rise 2.68 percent year-on-year.

The domestic brands’ combined share of 23.3 percent in China’s sedan sector was 1.24 percentage points less than in June and 0.97 percentage point lower than a year earlier, the weakest showing in at least five years, said CAAM on Friday.

German-brand sedan sales reached 223,500 units in July, maintaining leadership in the sector for a second consecutive month with a combined market share of 26.6 percent.

Dong said the luxury car segment would grow faster than the overall market in the long term, meaning more opportunities for foreign brands in the world’s largest auto market.

In July, German luxury car brand Audi’s sales in China surged 27 percent to 42,000 units, much faster than its global growth, which was less than 10 percent.

CAAM said that in July, total passenger vehicle sales maintained year-on-year growth of more than 10 percent, with total deliveries of 1.24 million units.

The sport utility vehicle and multi-purpose vehicle segments remained the fastest-growing segments, with expansion rates of 93.5 percent and 45 percent.

“Growth of about 10 percent is healthy and reasonable … good for the industry,” said Dong.

“Although increasing new vehicle sales create more traffic pressure in the cities, we cannot agree with simple curbs some local government impose to limit the number of vehicles on the road.”

Dong suggested that adjusting taxes on vehicle purchases on use would be an alternative.

By Li Fangfang

(China Daily)
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