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Auto sales rise steadily in China

From Zacks Equity ResearchJuly 16, 2013

Zacks Equity Research - After months of sluggish growth owing to weak economic conditions and restrictions imposed by the government on new vehicles, total vehicle sales in China reflected a steady growth of 11.2% in Jun compared with 9.8% in May, according to the China Association of Automobile Manufacturers (CAAM).

A total of 1.8 million vehicles were sold in the country during the month, leading to sales of 10.8 million vehicles for the first half of the year, up 12.3% on a year-over-year basis. Passenger vehicle (cars, multipurpose and sport-utility vehicles) sales also increased steadily by 9.3% to 1.4 million units in Jun compared with 9.0% in May. For the first half of the year, passenger vehicle sales rose 13.8% to 8.7 million units.

The steady growth in sales was mainly attributable to lower prices, which partially offset the effect of shortage of credit, weak economy and government restrictions on vehicle registration due to increasing traffic congestion and pollution in Chinese cities.

Sales of American brands swelled 12.7% to 1.8 million vehicles in the first half of 2013. Among the U.S. automakers, General Motors' (GM - Analyst Report) sales went up 10.6% to 236,207 vehicles in the month while Ford Motor¡¯s (F - Analyst Report) sales continued to be impressive, soaring 44% to 75,254 vehicles in Jun.

Sales of Japanese automakers recovered from the effect of political conflict between Beijing and Tokyo over disputed islands in the East China Sea.

Sales of Japanese brands, including Toyota Motor Corp. (TM - Analyst Report), Honda Motor Co. (HMC - Analyst Report) and Nissan Motor Co. (NSANY), grew 16.5% to 2.3 million vehicles in the first half of the year, as CAAM has revealed. Among them, Toyota sales grew 9% to 76,900 vehicles, Honda sales dipped 5.6% to 61,003 vehicles and Nissan sales fell 7.7% to 101,400 units.

Chinese automakers suffered due to strong competition from foreign automakers and their local brands. Sales of Chinese brands rose only 5.5% to 5.3 million vehicles during the first half of the year.

Meanwhile, sales of German brands went up 20.6% to 2.9 million vehicles in the same period. Sales of Germany¡¯s BMW grew 6.9% to 184,489 vehicles in the month.

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.

However, the incentives were scrapped and the Beijing government imposed quotas on new car registrations in order to control the traffic congestions. The scenario is expected to become worse in the future, as Chinese government has widened the number of cities where it is curbing vehicle purchases to reduce greenhouse gases, as China Association of Automobile Manufacturers has revealed.

According to Shi Jianhua, deputy secretary general of CAAM, the Chinese government will include Chengdu, Chongqing, Hangzhou, Qingdao, Shenzhen, Shijiazhuang, Tianjin and Wuhan cities for controlling auto sales. Shi believes that the controlling measures will reduce vehicle deliveries by 400,000 units or 2% of total vehicle sales in the country.

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