Boston, MA -- (SBWIRE) -- 11/15/2013 -- Vehicle sales in Taiwan in July 2013 stood at 26,841 units, up 4.8% year-on-year (y-o-y), according to the Taiwan Transportation Vehicle Manufacturers Association (TTVMA).

Owing to the low base effects of H212, passenger car sales in July grew 6.5% y-o-y, to 22,110 units, which is in line with our view that passenger car sales will see a bounce in H213. This provided a lift to overall sales. While 7M13 car sales remained roughly unchanged on a y-o-y basis at 132,273 units, we believe favourable base effects will continue to aid sales in the coming months. We are maintaining our full-year growth forecast of a 4.0% y-o-y rise in passenger car sales, to 220,000 units.

In contrast, commercial vehicle (CV) sales continue to disappoint with 7M13 sales tumbling 23.1%, to 29,215 units. Our Country Risk team remains downbeat on the Taiwanese economy and envisages further declines in manufacturing activity over the coming months, which we believe will be a major factor contributing to sustained weakness in CV sales (see 'PMI Showing Corroborates Downbeat Growth Outlook', September 4).

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Production

The trend in auto production mirrors that of vehicle sales. This comes as no surprise to us given that exports only make up about 20% of total industry output, which results in domestic sales trends having a major influence on automakers' production decisions.

Auto production in July 2013 rose 9.8% y-o-y, to 34,781 units.

Similar to passenger car sales, car production remains a bright spot in the sluggish economy, with 7M13 production increasing 4.9% y-o-y, to 170,793 units. The strong performance thus far has prompted us to upgrade our passenger car production forecast to 4.0%, to 289,000 units, from 1.8% previously.

On the other hand, CV production has disappointed as demand from businesses remains lacklustre, with 7M13 production declining 28.8% y-o-y, to 26,862 units. The poor performance has caused us to downgrade our 2013 CV output growth forecast to -25.0%, to 46,000 units.

Given that the CV segment forms less than 15% of total domestic production; its sharp contraction in 2013 will not have such a big impact on production growth. The revisions in the individual segments bring our overall vehicle production growth forecast for 2013 to -1.2%, to 335,000 units.

Comparatively to China, in addition to a narrowing differential production cost, Taiwan affords businesses a greater degree of intellectual property protection, a strong rule of law, as well as a more stable political environment. Recently two automakers, Volkswagen (VW) and PACCAR have announced investments in Taiwan.

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