China autos: someone still believes

by SR on June 14, 2012

BWA: good company, sure, but not necessarily a good forecaster

  • Conclusion: China isn’t where the action is this year. Auto parts supplier BorgWarner suggested that China might be better than people expect in 2012. Given that China sales data reflects wholesale rather than retail figures, it seems likely that the inventory situation is worse than it appears from the official figures. I like Toyota and its suppliers like Denso this year not only because Toyota has some good models coming through but also because of Toyota’s strong and improving position in the US market, where it (and we) should expect double-digit sales growth in 2012. [NB The chart below shows how cumulative commercial vehicle sales in China for January to May 2012 – the red line – have fallen below both 2011 (the blue line) and 2010 (the purple line) levels.]

China commercial vehicles, cumulative sales year-to-date (thousand units)

  • We need a big push to hit 7% growth in China. Vehicle transmission and turbocharger specialist BorgWarner attended the Deutsche Bank Global Industrials and Basic Materials conference yesterday (2012-06-13). During their presentation, BWA management was asked to comment on the outlook for the different regional markets and in his response CEO Tim Manganello said “China is going to be a little better, I think, than people expect”. It seems that BorgWarner expects about 7% growth for the year in China autos. Tim’s reasoning seems to be that local government has a lot of power in China to push auto sales and that this will happen. Maybe he is thinking of the recent moves by the Chongqing authorities to subsidise auto sales. Sure, that would help, but by how much is a different matter. And would it not just cannibalise future demand? By my calculations total vehicle wholesales have risen 1.3% YoY for January to May 2012. Passenger wholesales have risen 5% but commercial vehicle wholesales (as seen in the chart at the top of the page) are down 10.4% YoY for the same four-month period relative to 2011. Hitting 7% growth for the year as a whole is going to require a pretty big second-half push. The chart below suggests that May 2012 wholesales for passenger cars were stronger than is seasonally usual, but we need more months like that – and we need consumers to actually buy the vehicles currently being stuffed into the channel.

China passenger vehicle sales, month-on-month change for May 2005-2012

  • Not clear that BWA has any useful additional insights. I actually have a lot of respect for management at BWA, which is one of the few US auto parts suppliers that has proven itself globally. Still, Tim’s comments were a bit vague and he offered no support in terms of figures. What do “people” expect of China? And does BWA, as an auto parts supplier, really have a good handle on the situation in that country? The problem with tracking the auto market in China has always been the lack of reliable data from CAAM, the main organisation responsible for disseminating statistics on the auto market in China. By “reliable” I mean that CAAM reports sales to dealers (wholesales) rather than retail sales, which is the standard for most other countries. So we know how much product auto OEMs are throwing into the channel, we just have difficulty working out how much is actually being sold to consumers. Organisations purporting to provide such data exist, but it’s the sort of thing I would like to see CAAM doing. After all, they charge through the nose for their data so the least they can do is ensure it is as meaningful as possible.

China total vehicles, cumulative sales year-to-date

  • Nevertheless, Toyota’s production in China and other regions is close to peak. Although we don’t hear as much chit-chat about China and other developing regions these days, output outside Japan and North America is actually very strong for Toyota. The chart below shows Toyota’s monthly production in “Rest-of-World”, which is everything outside Japan and North America. The red line shows the peak in output and the blue line shows the actual monthly production. As you can see, output reached a record high as recently as March 2012. Things are looking good for Japan’s biggest auto OEM.

Toyota auto production in rest-of-world (thousand units)

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