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Chinese Automotive Market Decelerating Faster Than Expected

September 22, 2015

The automotive market in China is declining faster than expected due to economic uncertainty and government restrictions over vehicle ownership. Although automakers have had to slash prices in an effort to cut full inventory levels in the near term, the future in China may still hold promise if adjustments are made to automakers’ strategies, according to PwC, which analyzes automotive and other sector trends.

“While overall sales growth has been slowing and market share battles are becoming increasingly competitive in the Chinese car and minivan marke,t the SUV and multipurpose vehicles (MPV) segments show significant strength,“ said Rick Hanna, global automotive leader, PwC. “Looking forward, automakers will need to focus on interior cities to support long-term growth – and if they can do this while leveraging their product portfolio, they can weather the storm and maintain a stake in the most lucrative market in the auto sector.”

Although total automotive sales declined for two months consecutively in June and July, the sector performance is a mixed bag. While minivans and cars continue to struggle, dropping by 40 percent and 1.4 percent, respectively, through the first half of the year, SUV and MPV sales improved by 52 percent and 34 percent, respectively, year-over-year to 2.6 million and 1.2 million units sold, respectively, according to PwC.

To counteract the downturn of vehicle sales, domestic brands have developed a slew of new, less-expensive utility vehicles to meet customer preferences – with joint ventures following suit. However, the current outlook shows that consumer purchases such as vehicles will likely be put on hold, due to consumer investment in equities and the associated stock market crash, creating an uncertain consumer attitude, according to PwC.

While automakers and analysts alike have forecasted a downturn for the Chinese automotive market for some time, the current slow-down has transpired more quickly than anticipated. While the devaluation of the renminbi, China’s currency, is seen as an attempt to jumpstart exports, this currency shift towards a weaker renminbi makes imported vehicles more costly aiding the domestic manufacturers, according to PwC.

Although the short-term outlook does not look promising for automakers and suppliers, long-term growth prospects remain strong. The PwC forecast calls for the potential of a restrained market result of approximately 4.6 percent growth in 2015, and a moderate compounded annual growth rate of 4.0 percent throughout the forecast window to reach 30.6 million by 2021. Income among middle class is expected to continue to grow and consumer tastes will likely shift to higher-value, luxury purchases, according to the analysts.

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