China National Bureau of Statistics and Sinotrust Jointly Release 2010 Q3 China Automotive Industry Climate Index

The China Automotive Industry Climate Index records 104.8 points in Q3 of 2010 (2001=100), down 0.9 point over the pervious quarter. Though continuing Q2’s slight fallback, the index remains at a high level.

The Pre-warning Index is an important indicator reflecting the climate of the auto industry. In Q3 of 2010, the index registers 126.7 points, down 6.6 points from the previous wave, bringing the one-year increase to an end. However, the index is still a bit high.

The Auto Industry Entrepreneur Expectation Index reflects automakers’ perception of the current market situation as well as their future anticipations. In Q3 of 2010, the index registers 121.1 points, up 7.6 points over the previous quarter, indicating that entrepreneurs are quite satisfied with the market performance of Q3 and also optimistic about the market prospect.

The Dealer Manager Index demonstrates dealers’ perception of the current market situation as well as their future anticipations. In Q3 of 2010, the index soars by 24.1 points to 115.8 points, which indicates that dealer managers are much more confident about the market performance than before.

In summary, the following trends were observed during the survey: 1. the Industry Climate Index of Q3 remains high despite a slight fallback over the previous wave; 2. the growth of the related economic indicators (e.g. the industry’s total profit) shows a slowdown and the production and sales growth is becoming rationalized; 3. with vehicle prices dropping and the growth of the capital occupation rate for finished products regaining its momentum, the inventory pressure increases; 4. as entrepreneurs and dealers are satisfied with the market performance in Q3 and optimistic about the market prospect in Q4, both the Entrepreneur Expectation Index and the Dealer Manager Index stop dropping and rebound.

Because of a high base of comparison in Q3 of 2009, the Climate Index in Q3 of 2010 seems relatively low. The industry’s total profit, auto sales volume, total tax, and vehicle and parts exports all show a slowdown from the previous quarter.

Currently, the governmental stimulus package’s driving effects are waning slowly. The stimulus policies, such as “Vehicle purchase tax reduction”, “Promoting vehicle purchase in rural areas” and “Promoting the replacement of end-of-life vehicles”, may expire at the end of 2010, which will trigger a last-minute purchase rush at the end of this year. Therefore, the auto market will continue to be booming in Q4 of 2010.

According to the survey on entrepreneurs and dealers, both entrepreneurs and dealers are bullish on the auto market in Q4, because they believe the upcoming traditional peak season and the soon expiration of the policy of “Vehicle purchase tax reduction” will trigger a last-minute car-purchase rush. Dealers, who stand at the frontline of the auto market, are more sensitive to market changes. The market rebound in Q3 and the upcoming peak season in Q4 strengthen their optimistic sentiment, and make them very confident about the market performance in Q4.

According to the Entrepreneur Expectation Index, most entrepreneurs think the market demand will be stronger in Q4 than in Q3. 9.1% of the surveyed entrepreneurs are “very optimistic” and 90.9% are “optimistic” about the market demand. In terms of main business revenue, most entrepreneurs think they will see an increase in main business revenue in Q4. 33.3% of them think the increase will be “significant” and the remaining 66.7% think it will be “slight”. Also, some entrepreneurs think their sales volume will show a seasonal rise in Q4 because their major markets are in tier 2 and 3 cities, where the conclusion of the busy farming season and the end-of-year consumption mentality will greatly boost auto sales.

The Dealer Manager Index shows that most dealer managers think both their customer traffic and the sales volume will record an increase in Q4. When asked to predict the Q4’s situation, over 70% of dealer managers think the customer traffic will rise and 81.8% think the sales volume will show a continuous increase. In general, dealer managers are very optimistic about the market prospect in Q4.

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