Light-vehicle deliveries in China increased 18 percent year on year to approach 1,784,100 vehicles last month, capping a stronger-than-expected first half led by strong demand for crossovers, SUVs and multipurpose vehicles. 

 

In June, sales of crossovers and SUVs surged 41 percent from a year earlier to about 632,300 vehicles. Deliveries of MPVs jumped 35 percent to roughly 170,400 vehicles, according to the China Association of Automobile Manufacturers. 

 

Sedan deliveries rose 8.9 percent year on year to about 925,100 vehicles. 

 

But with customers migrating to crossovers and MPVs, the microvan segment continued to shrink, with sales slumping 38 percent to roughly 56,300 vehicles. 

 

In the first half of the year, China light-vehicle sales rose 9.2 percent from a year earlier to exceed 11,042,300 vehicles, with crossovers, SUVs and MPVs driving the gains.

 

Vehicle sales growth in the world's largest auto market stalled last year as the economy slowed before rebounding strongly in October supported by a tax cut on vehicles with small engines.

 

Pressure on dealers

Many industry watchers questioned whether the rebound could be sustained, but analysts say sales so far this year have met or exceeded expectations.

 

"People are cautiously optimistic," said Godfrey Tsang, a consultant and former vice president for Lexus China.

 

The sales growth for June was the highest monthly gain since December 2015, the manufacturers' association told reporters on Monday.

 

Reflecting the strong start to the year, LMC Automotive last month raised its prediction for annual growth by 0.4 percentage points to 8 percent in passenger vehicle sales for 2016.

 

But other indicators show pressure remains high on dealers. An index produced by the China Automotive Dealers Association to measure inventories sits at the highest level since November.

 

With fierce competition among dealers, average discounts have been up to 3 percentage points higher in the first six months compared with the same period in 2015, according to Chinese consultancy WAYS. 

 

Tax cut expirations

Analysts said the main uncertainty hanging over the market is whether the tax cut on vehicles with engines of 1.6 liters and smaller will expire or be extended.

 

If it expires as expected on Dec. 31, consumers may rush to buy small cars this year to cash in on the incentive, at the expense of next year's sales, while extending the cut would push down fourth-quarter sales.

 

The dealers' association said last month it favored making the tax cut permanent to promote fuel-efficient cars.

 

Association spokesman Chen Shihua said the tax cut would likely be extended if sales do not meet targets in the second half.

 

"Car sales would be volatile without the tax cut. Looking at H1, small engine cars have been the main driver of sales. If the government suspends this incentive, sales might drop a lot," Chen said.

 

The association reaffirmed its forecast that overall vehicle sales will grow 6 percent this year. 

 

But with China's real estate market rebounding, the government will be less likely to turn to car sales incentives to push up GDP growth, said James Chao, Asia-Pacific chief for IHS Automotive. 

 

Presuming the tax cut expires, IHS predicts sales growth will fall to 1.4 percent next year.