Structure and Markets

Truck sales take a holiday in February…

The negative data keeps coming… with the publication of February 2015 HDT volumes down 50% on year ago. Using our standard Seasonal Adjustment process (though see the CNY health warning below), this suggests the weakest month since the onset of the Crisis in 2009. We depict this development in Figure 1. February, of course, took the full impact of the extended CNY holiday this year, but that can hardly be the only issue afoot with the 2-month 2015 data down 36%. And it should also be pointed out that the car industry, in contrast, managed to squeeze in the manufacture and sale of an impressive 1.4m vehicles in February 2015, up 6% year-on-year, and also up 10-12% ytd 2015 (the range represents factory sales and production growth in the 2 months).

So is the truck industry at a major downward inflexion point? Truck company bosses know they have to talk down prospects in the ‘new normal’ of slower GDP growth, albeit now set pretty minimally lower at ‘around 7%’ for 2015 by the Beijing administration. Some think GDP is a ‘managed’ statistic in China, and although industrial production has been falling, a recent Markit survey shows a surprising level of business confidence for 2015. The conditions for a big change in truck sales do not really seem to be in place on the ground. Our analysis of the ‘irregular’ component of sales has flagged up a significant negative impact in 1Q15 for some time, based predominantly on the supposed overhang of perhaps 40,000 CN3 vehicles waiting to be put to use. Many of these are likely to be absorbed in the first half of 2015. The comparative of 1Q2014 is also high, boosted by attempts to sell out vehicles before the later abandoned CN3 expiry target.

Figure 1: Heavy Truck (>14t GVW) Factory Sales, Jan 2007 – Feb 2015, Seasonally Adjusted Annualized Rates. Compared to Real GDP %chya, 1Q07-1Q15 (est.) GDP on RH Scale.

Source: CAAM data, TIR seasonal adjustment

March, as always, will be decisive. In a typical year it is by far the biggest sales month (see Figure 2), worth almost as much as January and February together, and only rivalled by April in its prominence in the selling season. We aren’t reckless enough to forecast month by month data, as there are limits on the visibility of several short-term determinants. But if March data comes in some 10-25% short of March 2014 (97,100 units), it would be no surprise and certainly no additional cause for concern – the implied shortfall of 50,000 units in broad terms being explicable in almost equal measure by the overhang in 1Q2015 and the pull-forward which boosted 1Q2014 factory sales.

Figure 2: Average Seasonal Weights for Chinese Heavy Truck Sales