Changes in car sales structure
Since 2009, China's auto market has experienced significant growth. Sales have risen steadily, easing concerns about the impact of the global financial crisis. However, when major companies released their first-quarter reports, a drop in revenue revealed that the effects of the crisis were still lingering in the Chinese market.
Driven by national policies, overall car sales in the first quarter of 2009 rose by 3.84% year-on-year, reversing the downward trend seen in the latter half of the previous year. Notably, there was a clear shift in the sales structure. Sales of passenger cars with engines below 1.6L—by far the largest segment—increased by 21.66%, showing strong policy support. Light commercial vehicles maintained steady growth at 8.53%, largely due to fuel tax reforms and the "car-to-rural" policy. In contrast, sales of medium- and heavy-duty trucks, large passenger vehicles, light commercial vehicles, and cars above 1.6L all declined sharply, with medium and heavy trucks down 29.49%, large buses down 26.93%, light commercial vehicles down 13.53%, and 1.6L+ cars down 16.01%. April data showed no major changes in this pattern, indicating that the auto industry had not fully recovered.
Among these vehicle categories, low-displacement passenger cars and light commercial vehicles are not only cheaper but also less profitable compared to higher-end models. This structural shift led to a decline in overall revenue despite rising sales. According to statistics, operating income for listed auto companies fell by 13.76% year-on-year to 83.6 billion yuan in Q1. The industry as a whole saw a 9.74% year-on-year drop in revenue for January–February, reaching 295.2 billion yuan.
The shift in sales structure also caused a decline in gross profit margins, as mini-vehicles and small-displacement cars generate significantly lower profits than mid- to high-end models. Gross margins dropped by 0.8 percentage points from 14.38% in Q1 2008 to 13.58% in Q1 2009. This decline in both revenue and margins contributed to lower net profits. However, compared to the losses in the fourth quarter of 2008, the first-quarter results were relatively positive. On a month-on-month basis, gross margins improved by 1.84 percentage points due to increased sales and lower raw material prices, bringing them closer to levels seen in the second and third quarters of the previous year.
Another factor affecting net profits is the drop in investment income. Some listed companies hold foreign investments or financial assets, and during a weak macroeconomic environment, this decline is expected.
This structural change is evident in listed auto companies. Two examples illustrate how product mix affects revenue. Changan Automobile saw strong growth in micro-car sales, but its traditional car sales declined. While joint ventures like Changan Ford Mazda and Changan Suzuki reported lower sales, the company’s overall revenue still rose by 21.41% due to micro-car demand. However, the performance of its own-brand cars lagged behind, leading to a slower revenue growth than sales growth.
Foton Motor, on the other hand, had a different story. Although its total sales grew by just 0.6%, it managed to increase its gross margin by 2.03% due to lower raw material costs. Its profitability came mainly from light trucks, which accounted for over half of its profits. This helped Foton avoid the same challenges faced by Changan, where joint venture sales played a critical role.
In summary, while both companies benefited from the rise in micro-vehicles and light trucks, their overall performance varied based on their business structures. For the broader industry, the decline in sales of high-margin vehicles like trucks and large buses, coupled with an increase in lower-margin segments, naturally led to a drop in overall profits.
However, this trend is unlikely to persist. As the sales structure stabilizes, net profits are expected to rebound. For example, Changan Automobile’s micro-car sales continue to grow, and joint venture performance has started to improve. Changan Ford Mazda, in particular, saw a 1.84% year-on-year increase in sales in the first four months of the year, setting a solid foundation for future profit growth.
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