New Transportation research report from Business Monitor International is now available from Fast Market Research

Boston, MA -- (SBWire) -- 07/08/2013 --As the Chinese economy re-orientates itself to a more consumption driven one, auto sales continue to grow at a rapid clip. According to the China Association of Automobile Manufacturers (CAAM), China's March vehicle sales rose 10.7% year-on-year (y-o-y), to hit 2,035,100 units and Q113 sales grew 13.2% y-o-y, to 5,425,500 units. However, light vehicle inventories at dealerships are rising, suggesting to us that growth rates are likely to moderate slightly in the coming months. That said, Q113 performance is firmly on track to meet our bullish full year forecast of 8.4%.

As Chinese wages have continued rising over the years, China's attractiveness as a manufacturing and export hub, on the back of cheap labour, is diminishing (see our online service, December 4 2012, 'Rise Of Robots As Industry Moves Up Value Chain'). Our long-term auto production forecasts take that into account and we see them growing in line with our auto sales forecasts, mostly to satisfy domestic demand as exports are likely to enjoy slower growth rates in the coming years.

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Our Asia macroeconomic team believes that China's economy is going through a structural change and will re-orient itself from being an investment-led economy to one where consumption forms a bigger share. In this light, we believe that demand for CVs will lag due to a reduction in construction as well as capital spending and sales growth in the passenger car segment will outperform in the coming years.

While premium car sales rose only 4% in the first three months of 2013, vis-a-vis the 17.2% growth in the overall passenger car market, we remain optimistic on luxury vehicle sales and believe they will outperform the broader market. A few factors were at play to explain the unexpected poor performance of the luxury segment. One of them is the new emphasis on austerity by newly appointed President, Xi Jinping. However, as luxury automakers begin to shift their focus away from government sales to target rich consumers instead, we believe they will continue to experience higher growth rates for the rest of the year.

The recent worsening pollution in the country might force the government's hand to introduce hybrid subsidies, something which they had previously avoided due to the focus on pure electric vehicles (EVs). In our opinion, this would bode well for Japanese automakers such as Toyota, which is the world leader in hybrid vehicles.

According to industry reports, consumer financing is fast gaining acceptance in China. While helping to boost the market, it also encourages younger buyers to buy more expensive cars. Carmakers are increasingly trying to woo the younger generation to buy cars by coming up with newer and trendier models, so as to find new areas of growth.

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