With sales of new vehicles likely peaking in the United States, many investors are hoping that results in China continue to rebound after last summer's slowdown to help pick up the slack. The good news is that the Chinese government's tax incentive will continue to run throughout 2016, and there might be another driving force helping boost sales -- more on that in a second.
First let's dive into the highlights from major automakers in China last month -- and what to look at moving forward.
Who says small cars don't sell?
While sales of passenger cars have plunged in the United States this year, Ford Motor Company's (NYSE:F) Focus and Escort helped the automaker post a 22% increase in sales last month, compared to the prior year. Ford and its joint ventures sold more than 96,000 vehicles in August and have sold almost 750,000 vehicles year to date -- an 8% gain compared to the same time frame in 2015.
Zeroing in on the heroes, Ford's Focus posted a sales increase of 92%, while the Escort was up 49%, compared to the prior year's August. Heck, even Ford's Taurus, which has long been an afterthought in the U.S. market, continued to gain market share in the non-premium large sedan segment in China, according to Ford.
General Motors (NYSE:GM) posted similar results with its passenger cars. "Our mainstream passenger car entries drove our sales momentum," said GM Executive Vice President and GM China President Matt Tsien in a press release. "We are looking to build on our success by adding another five new and refreshed models in the final four months."
In total, General Motors and its joint ventures delivered an August record of 293,537 vehicles in China. That result was a pretty impressive 18% gain over last year's August, and its Cadillac, Buick, Chevrolet, and Baojun brands posted all-time highs for the month. Cadillac's deliveries jumped 93% during August to 9,914 units, and Buick posted a 23% gain to 94,188 units. During the first eight months of 2016, GM and its joint ventures have recorded an 8% gain, compared to the prior year, to more than 2.3 million vehicles.
Honda leads in August
Switching gears to the Japanese automakers, Honda Motor Co. (NYSE:HMC) managed to surpass Toyota Motor Corporation (NYSE:TM) and Nissan for sales during the month of August. Honda sold 106,663 units in China last month, a hefty 36% gain over the prior year's result. Meanwhile, Nissan deliveries checked in with a 17% rise to 103,800 units, while Toyota's results were a bit less impressive, with a 1.8% gain to 95,900 units.
However, despite the strong August, Honda still trails its two Japanese automakers for the full year. Through the first eight months of 2016, Honda's sales in China totaled 751,176 units, which was slightly behind Toyota and Nissan's results of 785,800 and 805,500 units, respectively.
Will these gains continue?
While these sales increases look impressive compared to the prior year, investors have to remember that it wasn't until about October when sales begin to rebound. That means comparisons are about to become more difficult as we head into the last few months of the year.
There is one factor that could help boost car sales in the years ahead: Chinese consumers embracing credit. Traditionally, Chinese households have been averse to taking on debt to pay for vehicles, but that may be changing. As recently as 2013, only 18% of Chinese consumers bought vehicles on credit, but that spiked to 30% during 2015. That's a far cry from the 80% of cars bought with loans in the United States, and Deloitte predicts that roughly half of Chinese consumers will embrace financing vehicle purchases by 2020.
As Chinese consumers increasingly embrace financing, it could certainly provide a small sales boost during the next few years as consumers on the fence about purchasing a vehicle might be enticed by the financing option.