China: Auto sales are in a downcycle – Standard Chartered

Automobiles, which account for 30% of China’s total above-scale retail sales, are becoming a major drag on retail sales growth, according to analysts at Standard Chartered.

Key Quotes

“Auto sales growth at above-designated-size enterprises fell to -7.1% y/y in September, contracting for a fifth consecutive month this year and taking 2.5ppt and 3.1ppt off these companies’ retail sales growth in Q2- and Q3-2018 respectively, as per our estimate.”

“The slowdown is concentrated in the passenger car market.”

“Given the timing of the policy shift on the purchase tax and the adjustment pattern of the inventory cycle, we see the momentum weakening further in Q4 and for most of 2019 until active destocking is completed.”

“We therefore expect auto unit sales to decrease 3.0-3.3% y/y in 2018, marking the first annual contraction in decades. This could drag down above-scale retail sales growth by 2.7ppt for the full year. However, the long-term growth potential of automobiles remains promising, in our view, given relatively low vehicle ownership and increasing affordability in China.”