'Cutthroat competition' could follow heady sales as govt incentives lapse

Car sales in China started off 2011 on a healthy note, with light vehicle sales in January climbing 16 percent over the same month last year to 1.8 million units.

The growth was driven by passenger vehicles, which grew 21 percent to 1.3 million units, while light commercial vehicles reported total sales of 504,000 units, an increase of 5 percent year on year.

On a seasonally adjusted annualized basis, January sales reached yet another record high of 20.7 million units per year, up 9.8 percent from a relatively weak December.

A jump in the rate was somewhat expected, as automakers reportedly "hid" many December sales and registered them as January sales in order to achieve their first quarter sales targets easier.

Sales volumes in January crossed 20 percent for most manufacturers, from small cars to high-end luxury models. Shanghai GM reported a record sales growth 43 percent while Shanghai VW boasted a 73 percent increase.

Underlying reasons

Exciting as they appear, those sales figures do not necessarily lead us to expect a bright outlook for the year as we take note of the two underlying reasons for the upbeat reports in January.

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First, most manufacturers, having met their targets last year, probably shifted part of the sales growth from last December to January. It is not unusual for Chinese car businesses to do so as it helps them meet the new target.

Secondly, automakers usually deliver more vehicles to dealers in January in the run up to the Chinese New Year in February, with the logistics and production schedules being wrapped up around December 25. Hence, part of February sales are registered in January. Combined s January and February sales may be a much better indicator for the full-year outlook.

But for some carmakers January sales were far from bullish.

BYD, for example, remained in the red in January after a decline that started last August. The carmaker saw its sales double in 2009 but lost its market share last year.