Global Insight commented on China’s auto market’s cautious forecast for 2008

Interview with Zeng Zhiling, Senior Analyst, Automotive Division, Global Insight (A) The Auto Market "Brakes" in the Middle of the Year Gasgoo.com: Looking back on the automobile market in 2008, it was a year full of twists and turns. From your perspective on the overall economic situation at home and abroad, when did the auto market start to decline significantly? Zeng Zhiling: Although there was growth throughout 2008, the main reason was the continuation of last year’s momentum in the first half of the year. In reality, the market began to “brake” in the middle of the year. Therefore, while 2008 was still a year of growth, the second half actually showed a clear downward trend. The turning point for passenger cars became evident at the end of the second quarter. Sales started to drop, and the decline accelerated in the third quarter. This timing and speed aligned with the rapid slowdown in China's exports, mainly due to the beginning of a new peak in the U.S. subprime mortgage crisis starting in the second quarter. Under the impact of this global financial storm, the Global Manufacturing PMI index hit record lows for several consecutive months since its establishment. The U.S. manufacturing sector experienced the most significant contraction, with output and new orders dropping to levels similar to those seen during the mid-1980s recession. China's PMI also declined rapidly, reaching 38.8% in November—the lowest since the index was launched in January 2005. A PMI above 50 indicates expansion, while below 50 signals a recession. By the second half of the year, the index had crossed below 50. Additionally, the new export orders index plummeted from 50.2% in June to under 30% in November—coinciding with the downturn in China’s auto market. Gasgoo.com: However, the Chinese auto consumption market is not directly linked to overseas markets or exports. Why does the decline align so closely? Zeng Zhiling: The Pearl River Delta and Yangtze River Delta are the most economically active regions in China. Provinces like Zhejiang, Jiangsu, and Guangdong accounted for about 35% of total national car licenses in 2007, and by the first three quarters of 2008, their share dropped to 25%. These regions are major auto consumers and heavily dependent on the export economy. For example, Guangdong’s exports account for over 90% of GDP, while Jiangsu and Zhejiang exceed 50%. Export-oriented enterprises in these areas were greatly affected by RMB appreciation and the financial crisis. For the first time in a decade, the growth rate of industrial production fell below the national average. This led to a decline in purchasing power and consumer confidence in these key regions. The economic downturn began along the coast and gradually spread inland. Many central and western provinces saw 30–40% increases in license numbers in the first half of the year, with Anhui reaching 50%—a worrying figure. By the second half of the year, the coastal economic slowdown began to affect the mainland. While the impact was smaller, it happened more quickly. Gasgoo.com: What about the commercial vehicle market? Zeng Zhiling: Fluctuations in the commercial vehicle market are mainly influenced by the Euro III emission standards. Early consumption factors caused a surge in the first half of the year. Even without the financial crisis, the market would have declined in the second half, but the crisis accelerated the downward trend. The heavy-duty segment of commercial vehicles was almost destroyed in the second half of the year. Export of heavy trucks was severely impacted, with some major companies achieving only half of their targets. Russia, a major export market, raised emissions standards and tariffs, targeting Chinese firms, which significantly affected Chinese automakers. Demand from developing countries also dropped sharply. An important indicator for commercial vehicle demand is freight turnover and social possession. With a sharp drop in freight volume and volatile commodity prices, demand for commercial vehicles declined rapidly. Natural disasters are short-term factors compared to larger structural issues. Stock market crashes and wealth shrinkage will definitely impact the auto market, but the effect is far less than the financial turmoil. The crisis shook company investment plans and consumer confidence, affecting profitability and job markets, leading to a domino effect across related industries. (B) Commentary on Various Market Segments – Japanese Car Prices May See a Big Drop Gasgoo.com: In your 2007 analysis, you noted that C-class, D-class, and B-class cars saw declining performance, while B-class, SUVs, and MPVs performed similarly, and A-class vehicles remained strong. How did different segments perform in 2008? (Global View’s classification: A-mini, B-small, C-compact, D-medium, E/F-medium-large) Zeng Zhiling: In 2008, MPV growth was weak, with the main growth focus still on B- and C-class models. There wasn’t much change by grade. The shrinking coastal consumer market had a greater impact on D-class vehicles, especially mid-to-high-end cars. A-class vehicles, which are small-displacement, had weaker performance than the previous year. One reason is product aging—models like Alto were discontinued, while new models like F0 and Panda were only introduced at the end of the year. However, I believe with favorable policies next year and new model launches, A-class vehicles will gain more attention. The competition in the D-class segment is becoming a “zero-sum game.” Growth in this segment will put pressure on other markets. D-class market share growth is limited, and many companies are pushing new models, such as Shanghai GM’s new Regal and LaCrosse, making competition more intense. Gasgoo.com: If we compare old and new models, do the old ones still have strong sales? Zeng Zhiling: The oldest models have already exited the market, with Santana and Jetta having shifted production. This shows that manufacturers are preparing for the future by moving these models to the mainland market. We expect sales of old models next year to be similar to this year. Over the next three to five years, they will gradually decline. Gasgoo.com: When comparing multinational corporations and self-owned brands, the former are declining in pushing new products, while the latter are rising. Were their efforts in 2008 successful? Zeng Zhiling: In 2008, self-owned brands operated at a loss for the year. Chery, which previously performed well, relied heavily on exports in recent years. Its domestic market has now seen rapid negative growth. Brilliance’s decline is even more alarming, and other companies are maintaining stability. Many new models introduced were not particularly successful. Among independent brands, FAW and Geely are performing steadily. Geely’s product structure is the most notable, having improved from previous low-quality models. Their new models are more solid, and I think they’ve done a good job. FAW is a fast-growing brand, excelling in both sales and reputation. Dongfeng’s self-brand sedan, code-named BF3, originally scheduled for December, has been postponed to the first half of next year. This project has received significant investment. Dongfeng’s capabilities are more focused on large-scale brands, and although progress is slow, once launched, the pace is fast. SAIC’s integration is not yet complete. They haven’t fully mastered the technological transformation of Roewe and MG. New models have not performed well, with configurations failing to meet expectations. Performance is lower than expected. I believe once the integration is completed (such as the Nanjing production base), performance will improve. GM leads in low-level penetration. It has announced and will implement projects like Wuling’s mid-level sedans. Many models like Jingcheng and Le Feng are priced low, cutting into its own brand’s price system. However, its future remains uncertain, as North America is in crisis. We speculate that lower-tier models may be transferred to Wuling, or SAIC-GM-Wuling may create a new brand instead of using generic names (low-cost battles). Based on current media reports, GM seems to be trying to stop the decline of the Chevrolet brand, as once a brand’s positioning declines, it’s hard to recover. Japanese cars have always maintained high brand premium ability, but this year was also affected by price wars. Yaris initially set a fine car concept, then dropped by 20,000 yuan. Previously, their main market was the coastal region. Under current conditions, their focus will shift to the mainland. Japanese cars don’t easily engage in price wars, despite having the largest price space and strong profitability. They prioritize overall profits. If market conditions worsen next year, it’s possible that Japanese car prices will drop sharply. Korean cars have shown the most improvement. Last year, Hyundai’s performance was poor, but Yuet has performed well, and the new Lion Run is popular. This year, Korean cars have regained their deserved market share. Future growth will focus on compact cars. Hyundai and Kia will design specific compact models for the Chinese market. Their weakness is in high-end cars, where Sonata has failed for several generations, so they will likely continue focusing on the compact segment. (III) European Suppliers or Dominant Suppliers Gasgoo.com: Do you think the top three U.S. automakers are on the verge of bankruptcy, and the North American market is experiencing a rapid sales decline? What impact will this have on domestic businesses? Zeng Zhiling: U.S. automakers on the brink of bankruptcy will certainly affect their brand image in China. Consumers who have seen numerous news reports may no longer trust the brand as before, leading to a brand trust crisis—despite Chinese consumers generally preferring foreign brands. A recent survey by Xinhua News and Sina.com found that 51.5% of respondents said they would give up buying American cars if the top three dealers went bankrupt. Once a brand faces problems, after-sales service and residual value will suffer. How to prevent brand value from being damaged is something GM and Ford need to address in China. Recently, GM selling its brand has undoubtedly shaken consumer confidence. Gasgoo.com: Is the recession in Europe and the U.S. beneficial for domestic brands? Zeng Zhiling: It’s hard to say whether it’s good or not. Whether self-owned brands can seize the opportunity to take over brands that GM or Ford should handle, or intervene in the overseas parts and components industry chain, is a big question. Of course, it’s the best time for mergers and acquisitions. If the three major assets or brands are dealt with, or part of their joint ventures in China, self-owned brands could quickly fill the gap and enter the market or increase their rights in joint ventures. These are all positive developments. The negative side is that if the three major issues arise, their associated suppliers, such as Visteon and Delphi, will be affected. This may not be good for local Chinese companies. Currently, brands like Chery and Geely have purchased a lot from multinational suppliers like Visteon and Delphi. In the auto parts supplier systems of Europe, the U.S., Japan, and South Korea, Japan and South Korea have relatively closed systems. If the U.S. parts system is affected, Chinese companies may switch to European suppliers in the short term. Such dependence could lead to European suppliers dominating the market, which is not favorable for Chinese companies. (D) The U.S. Profit Model Has Been Subverted – China’s Auto Market Expected to Grow 4% Next Year Gasgoo.com: With the general decline in the world and slowing growth in China’s auto market, will the speed of domestic new model launches slow down? Zeng Zhiling: Looking at GM’s situation, there has been no apparent slowdown. New models are still being launched as planned. Some future models from domestic companies may be delayed. Short-term demand slowdown has led auto companies to adjust tactics. For example, Korean cars sold in China are no longer introducing new models from abroad. This is a typical example. Gasgoo.com: Do you think there will be changes in the global automotive market that will affect the Chinese automotive market? Zeng Zhiling: The rapid decline of the U.S. auto industry has already had a considerable impact on the global automotive market. Countries like the U.S., which rely heavily on credit to buy cars, are more affected than China during a financial crisis—nearly 90% of Chinese people use cash to buy cars, while 90% of Americans use credit. The U.S. auto industry’s profit model is completely overturned. GM doesn’t make money from manufacturing but earns profits from its auto finance department, so the profit focus is on auto finance. How the three major U.S. automakers survive in the future remains unknown. The three major U.S. groups have faced an unavoidable acceleration of the recession, which has been showing signs for over ten years. It was only due to the highly indebted, high-consumption model caused by abnormal development of the U.S. financial market that the three groups could temporarily ease. Now that the last straw has been removed, the “Big Three” will have to rely entirely on production, improving vehicle models, quality, and cost reduction. The challenges remain significant. Our GDP growth is still driven by investment. In the short term, government stimulus measures will have a clear effect on improving factory utilization and stimulating upstream and downstream industries of certain key sectors. However, most affected enterprises are coastal export-oriented companies. They find it difficult to immediately benefit from the state’s four-trillion-yuan investment plan and may not return to previous levels in the short term. Personally, I hold conservative expectations and believe exports will remain sluggish. The revival of these enterprises ultimately depends on the recovery of European and American markets; it is unlikely their products will be fully transferred to the domestic market. Therefore, the sedan market in coastal areas will take a long time to revive. (Gasgoo.com: Will the domestic auto industry’s export business recover?) The outlook for the export market in 2009 is difficult, and it will be a very tough year for self-branded companies. Therefore, we must pay more attention to the domestic market. Although the expectation for next year is only a slight increase or may decline, China’s auto market is still the second-largest in the world, after the U.S. Meanwhile, the European and American markets are falling by 20% to 30%. Gasgoo.com: What is the expected growth of the domestic auto market in 2009? Zeng Zhiling: The market is definitely showing a downward trend in the first half of 2009. It is now unclear whether a rebound will occur in the second half. The policy to stimulate automobile consumption is not yet clear, so it is difficult to assert, but it is expected that sales of small-displacement vehicles will increase substantially. Fuel tax reductions, purchase tax cuts, etc., will help change spending habits. Lower car costs will increase affordability for low-end consumers, and some potential buyers may be motivated to purchase. If the country’s series of policies to expand domestic demand, stimulate economic development, and revitalize the auto industry are effective, and the international economic environment improves in the second half of next year, we expect the auto market to have a slight increase next year—about 4%. However, if the U.S. economy does not rebound as expected in the fourth quarter of 2009 or early 2010, the entire global economy will struggle to regain confidence, and China’s export expectations will also be bearish, leading to negative growth in the auto market. So now is a special period with great uncertainty.

CNC Aluminium Products

Aluminum Profile,Aluminum Extrusion Cnc,Aluminum Machined Parts,Cnc Aluminum Profile

Guangdong Guangyuan Aluminum Co.，LTD , https://www.guangyuan-alum.com