SII AUTO RESULTS: 11-15-18



A PUBLIC SOURCED ARTICLE FOR MATASII (SUBSCRIBERS-SII & PUBLIC ACCESS) READERS  REFERENCE

SII - RETAIL AUTOMOTIVE 

11-09-18 - "Chinese Auto Sales Suffer Historic Collapse; Set For First Annual Decline In 30 Years"

11-11-18 - "Auto Stocks Slide On Reports US Car-Import Probe Is Advancing"

 



MATASII TAKEAWAYS:

  • China has now conceded that 2018 vehicle sales, in total, will fall short of the 28.8 million that were sold last year,
  • China's October auto sales numbers have been another disaster, a harbinger for an accelerating global slowdown for the industry.
  • "the slump may be the biggest that auto manufacturers have ever experienced in China."
  • Automobile sales were down 12% y/y in October, sliding to 2.38 million,
  • China could wind up a huge (and somewhat unexpected) contributor to a major global pull back in the automotive sector because it has widely been seen over the last decade as an opportunistic spot for growth by auto makers,
  • China was supposed to be the saving grace of the global auto market, pitched by auto makers and analysts as an endless area of opportunity and growth,
  • passenger car sales fell 13% in the month to 2.05 million, down 8% for the third quarter. Passenger car sales were off 1% for the first 10 months of the year.  That puts them down 1% for the first 10 months of the year, on course for their first yearly decline in nearly three decades,
  • Sales of commercial vehicles were down 3% last month to 333,000, but at least remain slightly positive, up 5.5% for the year,
  • The silver lining were electric vehicles: they were the sole area of growth last month, posting a gain of 51%. For the first 10 months of the year, sales were up 76% to 860,000 fueled by government subsidies and favorable policies, as well as still prevailing novelty. However, keep in mind the sample size is still small enough to barely register,
  • Weighing on the auto industry is the ongoing stubborn bear market in Chinese stock prices leaving citizens with less disposable income,
  • China's slowdown has also hit names like General Motors which last month reported a 15% drop in China deliveries for the three months ended Sept. 30, the first quarterly report since the trade tensions with the U.S. began escalating in July,
  • Some car makers may also be forced to shutter factories to reduce inventories and lower costs. The end result could be another deflationary wave coupled with China's biggest nightmare: mass layoffs.

 


CHINESE AUTO SUFFER HISTORIC COLLAPSE; SET FOR FIRST DECLINE IN 30 YEARS

China was supposed to be the saving grace of the global auto market, pitched by auto makers and analysts as an endless area of opportunity and growth. Instead, China's October auto sales numbers have been another disaster, a harbinger for an accelerating global slowdown for the industry. Automobile sales were down 12% y/y in October, sliding to 2.38 million, according to the Wall Street Journal. And with this dreadful annual comp, 2018 has now turned negative for overall Chinese auto market.

A quick breakdown: passenger car sales fell 13% in the month to 2.05 million, down 8% for the third quarter. Passenger car sales were off 1% for the first 10 months of the year.  That puts them down 1% for the first 10 months of the year, on course for their first yearly decline in nearly three decades.

Sales of commercial vehicles were down 3% last month to 333,000, but at least remain slightly positive, up 5.5% for the year.

The silver lining were electric vehicles: they were the sole area of growth last month, posting a gain of 51%. For the first 10 months of the year, sales were up 76% to 860,000 fueled by government subsidies and favorable policies, as well as still prevailing novelty. However, keep in mind the sample size is still small enough to barely register.

This 12% drop for China follows a similar drop in September and a 4% decline in both July and August. It was the steepest drop since late 2012, which also marked the fourth consecutive month of declines at the time.

Yao Jie, vice secretary general of CAAM (the China Association of Automobile Manufacturers) commented at a press conference in Beijing: “Maintaining positive growth to the end of the year won’t be easy. There could be negative growth." As noted above, if that happens, it would be the first time since at least the early 1990s that annual car sales in China have contracted.

CAAM had originally forecast a 3%  rise for the year, in line with last year’s growth, though sharply down from a 13.7% gain in 2016.

What is remarkable, is that unlike many other slowdowns the Chinese government has so far refused to intervene and stimulate the market. In the past, during periods of sharp slowdown, Beijing has proceeded with tax cuts, and while some analysts still believe that this is possible even despite the ongoing trade war with United States, the Chinese manufacturers association doesn’t think that a tax cut is the answer.

Shi Jianhua, the association’s deputy secretary-general, told the Wall Street Journal, "We do not advocate short-term stimulus measures. We support long-term policies that can help the industry to grow at a slow and steady pace."

As a result, China has now conceded that 2018 vehicle sales, in total, will fall short of the 28.8 million that were sold last year.

Further weighing on the auto industry is the ongoing stubborn bear market in Chinese stock prices leaving citizens with less disposable income.

China could wind up a huge (and somewhat unexpected) contributor to a major global pull back in the automotive sector because it has widely been seen over the last decade as an opportunistic spot for growth by auto makers. For instance, companies like Tesla (of course) have recently cited China as a way to gain a bigger slice of the global auto market. Auto sales in the United States and Europe have already started to plateau or fall, but China was widely seen as a remaining area for opportunity. Obviously, that changes now.

Just weeks ago, we noted that China was mentioned very cautiously by automakers, many of whom were offered pessimistic forecasts for the remainder of this year. Renault recently blamed its poor numbers on a global slowdown in sales in places like China and Europe, as well new emissions standards. Volkswagen alsorecently cut its sales forecast for China, citing a slowdown in the country as well as the looming trade war with the United States.

China's slowdown has also hit names like General Motors which last month reported a 15% drop in China deliveries for the three months ended Sept. 30, the first quarterly report since the trade tensions with the U.S. began escalating in July.

When we last looked at the Chinese auto sector last month we quoted  Bloomberg Intelligence analyst Steve Man who said that "the slump may be the biggest that auto manufacturers have ever experienced in China." And just like in the US, weaker brands will be hit disproportionately, forcing price cuts to boost sales, Man said. Some carmakers may also be forced to shutter factories to reduce inventories and lower costs. The end result could be another deflationary wave coupled with China's biggest nightmare: mass layoffs.

 



MATASII TAKEAWAYS:

  • The White House is circulating a draft report by the US Commerce Department about whether to impose Section 232 tariffs on automobile imports. The report, which is the latest sign that Trump's investigation into auto tariffs is moving forward, should offer an update on the status of the probe,
  • Trump ordered the investigation back in May under the same Trade Expansion Act provision that he used to justify the tariffs on steel and aluminum - though Commerce has until February to finish the probe,
  • Despite the pleas of GM and Ford, who have said tariffs could seriously impact profitability and lead to thousands of job cuts, Trump has threatened 25% tariffs on imported cars while expressing frustrations with the US's European and Japanese trading partners,
  • This is happening at a time when the downward spiral in US car sales continued in October after an already abysmal September.

 


Auto Stocks Slide On Reports US Car-Import Probe Is Advancing

Minutes before the close of a brutal trading day that saw the Dow dump more than 600 points, Bloomberg published a report that simultaneously stoked the worst fears of German carmakers and US investors who are desperately searching for a positive trade-related headline to reignite the rally. The headline sent shares of Ford and GM lower into the close.

The White House is circulating a draft report by the US Commerce Department about whether to impose Section 232 tariffs on automobile imports. The report, which is the latest sign that Trump's investigation into auto tariffs is moving forward, should offer an update on the status of the probe.

Trump ordered the investigation back in May under the same Trade Expansion Act provision that he used to justify the tariffs on steel and aluminum - though Commerce has until February to finish the probe.

Car

Trump is planning to meet with his trade advisors and Commerce staff on Tuesday to discuss the report and car-import tariffs more generally, though it's unclear whether Trump will act soon on the tariffs, according to Bloomberg (Trump will likely abstain from more trade-related antagonisms until at least after his meeting with Chinese President Xi Jinping at the G-20 summit later this year).

 

News of the activity on the trade front seems ill timed, considering that European Commission trade chief Cecilia Malmstrom is about to leave for Washington to meet with US Trade Representative Robert Lighthizer for "exploratory" talks about a future free-trade agreement. Formal talks are expected to follow in January.

Still, automakers have good reason to be nervous. Despite the pleas of GM and Ford, who have said tariffs could seriously impact profitability and lead to thousands of job cuts, Trump has threatened 25% tariffs on imported cars while expressing frustrations with the US's European and Japanese trading partners. Governments and companies from Europe and Asia warned that the tariffs would disrupt the global automotive industry and hurt US growth during hearings in July.

Furthermore, Trump has exhibited more signs of his growing impatience, particularly regarding what he sees as an unfair trade relationship with Japan. At a press conference last week, he told a Japanese reporter to "say hello to Shinzo", referring to Prime Minister Shinzo Abe, adding that "I’m sure he’s happy about tariffs on his cars."

"I tell him all the time that Japan does not treat the United States fairly on trade. They send in millions of cars at a very low tax. They don’t take our cars. And if they do, they have a massive tax on their cars," Trump added.

Furthermore, European Commission President Jean-Claude Juncker said Monday that Europe's avoidance of US car import tariffs might not last past the end of the year.

All of this is happening at a time when the downward spiral in US car sales continued in October after an already abysmal September.

Cars

And as if the situation in the US wasn't bad enough, Chinese car sales were also a disaster last month,meaning that global automakers, who rejoiced at China's promises for market liberalization, might need to find a new savior. But with the midterms now behind us, Trump is probably less concerned about the impact his trade policies might have on the market, given that the political pressure has been - at least temporarily - relieved.