Cyclical growth dip expected for light vehicles in 2015

The vehicle purchasing restrictions active in China's largest cities present a further negative influence to PV sales growth in 2015.

Leaving aside Hangzhou and the other restricted cities, Shenzhen alone, in our estimation, could trigger a loss in volume to the tune of 200,000 units when compared to 2014.

These losses could potentially be even higher given that a number of other cities such as Nanjing are likely to follow suit in the implementation of restrictions during the course of the year.

Public concern over the inevitable spread of the restriction policy may well trigger further early vehicle purchases, but it is our view that its impact on PV sales growth as a whole in 2015 will be far weaker than was the case in 2014.

The downturn in the country's economic growth provides a further potential threat to the vehicle market. Our forecast shows the Chinese economy growing by 6.8 percent in 2015 versus 7.4 percent in 2014 and 7.7 percent in 2013.

The slowdown in fixed asset investment growth, triggered by a change in the country's economic development, is likely to impact the sale of commercial vehicles, while, to a lesser extent, slower consumption growth will contribute to the downswing in the growth of the PV sector.

Although we do not expect any ongoing significant decline in sales of light trucks or pickups in the year to come, demand for light commercial vehicles in particular will be squeezed further by the implementation of the China IV emissions standards.

The higher purchase cost resulting from the stricter regulations could prompt customers to pick one of two options－they will either delay their purchase or select a low-speed truck that is as yet unaffected by the regulations and is not included in the automotive statistics provided by the China Association of Automobile Manufacturers.

Bearing these factors in mind, our expectation is for growth in LV sales to continue to decline into 2015. We expect China's LV sales growth this year to drop to 5.9 percent, prompted by the exacerbation of a number of factors including dealer-level inventories along with the impact created by purchasing restrictions, all of which will produce a cyclical dip during the 2013-2016 period.

In LV production terms for the year ahead, we cannot avoid yet another negative factor when considering that the gap between production and wholesale in the PV sector in China expanded to 270,000 units in 2014, accounting for 1.4 percent of total yearly production－a level which has not been seen since 2007.

Adjusting for this, China's LV production in 2015 is expected to increase by 5.2 percent, or 0.7 percentage points lower than our sales forecast.

(Note: since January 2015, LMC Automotive has followed the China Association of Automobile Manufacturers to classify the Wuling Hongguang and Changan Honor in to the MPV [PV] segment; while the Minibus segment is still defined as LCV.)

The author is the China forecasting manager of LMC Automotive. bzhu@lmc-auto.com