Actually - China SAAR YTD Looks Stronger than It Did in Jan-May 2016

Some Quick Thoughts on YTD U.S. Auto Demand with FY17 Implications

Are the Japanese Brands Still Competitive? (Quality Performance)

I'm Back with New and Hopefully Better Thoughts (Japanese Automotive Industry)

Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

China Automobiles / Thematic (Sector/Industry)

<p>Average SAAR in China in the first 3 months of 2017 stands at 27.1m units, implying a 3% YoY decline.  However, March SAAR of 27.0m units showed signs of recovering to trend demand which I estimate to be at 27.9-28.5m units.</p><div class="content-highlight"><p>In October 2015, Sales tax for 1.6L cars in China was lowered from 10% to 5%.  It was widely expected that at the originally scheduled expiration of the tax subsidy in January 2017 would take the tax rate back to 10% but the tax was raised by only 2.5% in January 2017.   China's SAAR was exceptionally strong in 4Q16 ahead of the scheduled expiration of the 1.6L engine tax subsidy in January and given the final 2.5% subsidy expiration is scheduled for January 2018, <strong>there may be a chance that 4Q17 SAAR can repeat the strong SAAR pattern seen in 4Q16, bringing the total annual China demand to a stronger level than the average SAAR seen in 1Q17.  If this turns out to be the case, then selling rates may strengthen considerably in 3-4Q17 as it did in 4Q16.</strong></p></div><p>This note follows my observations of the YTD U.S. market that I published  over the last weekend (see <a href="https://www.smartkarma.com/insights/some-quick-thoughts-on-ytd-u-s-auto-demand-with-fy17-implications" target="_blank" data-smartkarma-citation="insights:10842">Some Quick Thoughts on YTD U.S. Auto Demand with FY17 Implications</a>, 20 May, 2017).  I will continue to look at global demand patterns in 2017, but looking at the 2 largest single country markets in the world investors should not expect to see strong demand growth at the topline levels in the automotive sector in 2017.</p>

Average SAAR in China in the first 3 months of 2017 stands at 27.1m units, implying a 3% YoY decline.  However, March SAAR of 27.0m units showed signs of recovering to trend demand which I estimate to be at 27.9-28.5m units.In October 2015, Sales tax for 1.6L cars in China was lowered from 10% to 5%.  It was widely expected that at the originally scheduled expiration of the tax subsidy in January 2017 would take the tax rate back to 10% but the tax was raised by only 2.5% in January 2017.   China's SAAR was exceptionally strong in 4Q16 ahead of the scheduled expiration of the 1.6L engine tax subsidy in January and given the final 2.5% subsidy expiration is scheduled for January 2018, there may be a chance that 4Q17 SAAR can repeat the strong SAAR pattern seen in 4Q16, bringing the total annual China demand to a stronger level than the average SAAR seen in 1Q17.  If this turns out to be the case, then selling rates may strengthen considerably in 3-4Q17 as it did in 4Q16.This note follows my observations of the YTD U.S. market that I published  over the last weekend (see Some Quick Thoughts on YTD U.S. Auto Demand with FY17 Implications, 20 May, 2017).  I will continue to look at global demand patterns in 2017, but looking at the 2 largest single country markets in the world investors should not expect to see strong demand growth at the topline levels in the automotive sector in 2017.

YTD China SAAR Impressions:  Selling Rates May Strengthen in 2H17