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Automakers face bleak prospects

"The market has hit bottom. We do not see any positive factors that could revive car sales in the second half of the year."

Steven Yang, spokesman for Hotai Motor Co

Local automobile makers are bracing themselves for a lackluster second half as few stimulants will be available to generate sales, industry watchers said yesterday.

"The market has hit bottom. We do not see any positive factors that could revive car sales in the second half of the year," Steven Yang (楊湘泉), spokesman for Hotai Motor Co (和泰汽車), the nation's top automaker, told the Taipei Times.

Car sales, he said, have been dipping mainly because of credit tightening as financial institutions seek to reduce the impact of consumer bad loans arising from credit and cash card abuse.

Although July is historically the second-best month for car sales -- that is, after the month before the Lunar New Year -- prospects for the month look bleak this year as it is also a peak period for lenders to review loan applications, he said.

Delayed spending

Furthermore, consumers are expected to hold off on their purchases of big ticket items during the two months starting from July 25, due to the "Ghost Month" effect, which usually results in a decline of around 30 percent for auto sales, Yang said.

Car sales in the first six months of the year plunged more than 25 percent to 207,247 units from a year earlier, with major makers experiencing a drastic decline in their business, according to statistics from the Ministry of Transportation and Communications.

Ford Lio Ho Motor Co (福特六和), the nation's fourth-biggest automaker, experienced the largest drop with sales falling more than 40 percent to 18,591 units during the period.

Yulon Nissan Motor Co (裕隆日產), the third-largest maker, saw a 39 percent dive to 23,007 units.

Both Hotai Motor and China Motor Corp (中華汽車) saw sales drop around 27 percent to 56,893 units and 35,189 units, respectively.

According to Yang, cumulative domestic car sales for the year would probably still reach the 400,000-unit mark, but that figure would still be a far cry from the more than 500,000 units sold last year.

Hotai Motor has cut its annual sales target to between 125,000 and 130,000 units, from its original forecast of 150,000, while Yulon Nissan and China Motor will likely trim targets in their upcoming board meetings.

Weak sentiment

Meanwhile, Macquarie Equities said on July 2 that it had cut its forecast for domestic car shipments to 418,000 units this year, 18 percent lower than its previous estimates.

"While the market has expected a slowdown in car shipments on the back of high oil prices, tighter bank credit and weak consumer sentiment, we think risks to our earnings projections [on carmakers] are on the downside as the first half is usually the high season," Macquarie said.

The Taiwan branch of the Australian investment house projected that domestic car sales would grow a mild 3 percent next year in the wake of a more relaxed credit and monetary environment, coupled with an upward trend in interest rates.

As increasing oil prices are a major factor affecting car sales, some auto assemblers are introducing vehicles that run on diesel engines, which are more fuel saving and environment friendly. Nan Yang Industries Co (南陽實業), which distributes cars made by South Korea's Hyundai Motor Co, assembled the nation's first diesel vehicle Tucson early this year. It will ride on the vehicle's popularity by bringing in 2L diesel-powered Sonata sedans later this year or early next year.

There are still some incentives for investors though. “We expect dividends from the auto makers to remain relatively high, this should provide downside support. This is particularly true for auto distributors as opposed to auto manufacturers, and we prefer the former,” Macquarie said.
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