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At the end of the year, the auto market is expected to witness intense competition. This year has already seen a highly competitive environment, with no one really "stealing" music—though that phrase seems out of place here. Last year, in May, the market dropped by 20% compared to April, largely due to the impact of SARS. This year, May also saw a similar 20% decline from April, again influenced by the lingering effects of the pandemic. In economic terms, this situation was referred to as "atypical overheating." Historically, every country has had to implement macroeconomic controls on the auto sector, and in China, this has happened about seven or eight times since the 1980s.
While these controls have affected the auto market significantly, the current situation is much better than in the past. Previously, the market would experience sudden drops of 10% to 20% year-on-year, but that hasn’t happened this year. Jia Xinguang, a well-known analyst, noted that May is not typically the best time to sell cars. However, the overall performance in the first half of the year has been strong, with growth exceeding 20%, a rare achievement globally. Meanwhile, Europe, North America, and Japan are all seeing declining auto markets. Meeting a 20% growth target is challenging, and if the industry grows too quickly, it could lead to issues like traffic congestion and infrastructure strain.
Jia remains optimistic about the first half of the year, though he cautions against blind optimism. He points out that July and August usually don't bring significant growth, but the market should remain stable during this period. The real sales surge is expected in September and October, often referred to as the "gold nine silver ten" period. However, the fourth quarter may bring more complex conditions. Jia predicts a fierce competition at the end of the year, including price cuts.
The second half of the year will focus on clearing existing inventory. Since 2003, there has been a trend where the year-on-year growth rate of sedans has declined each quarter. For example, in the first quarter of 2003, the growth was 20% compared to the same period in 2002, but by the end of the year, it had dropped to 60%. This year, the growth started at 40%, then fell to 37% in the second quarter, and further to 31% in the third. While this might seem like a downturn, it's actually normal due to the base effect, as the numbers are still growing.
If the market remains balanced, achieving a growth of nearly 1 million vehicles should be manageable. The key challenge for the second half is to clear the existing stock. Currently, manufacturers report around 130,000 units in inventory, which is only 1/10 of the 1.24 million cars produced in the first half of the year. While the overall inventory isn't severe, the real issue lies with dealers, who hold limited stock. Some have sold out, creating obstacles for capital flow. Therefore, dealers must prioritize selling their current stock, and in a sluggish market, they can't rush the process—they can only wait for the market to absorb the excess.
Price reductions are also being considered to protect consumer interests. One reason the market isn't performing as expected is due to consumers holding off on purchases, waiting for potential price drops. Jia pointed out that this expectation comes from two main factors: many people anticipate importing cars next year and expect prices to drop accordingly. Others still hope for lower prices on current models, leading to a "siege" mentality among buyers. They want to buy without the price going down, and their expectations are very high. As a result, some manufacturers struggled in the first half of the year, partly due to pricing adjustments.