The firm’s latest analysis shows that in Q2 2014, China’s light vehicle sales ended with a SAAR of 23.56 million units in June, which fell between the 23.01 million units reached in April and the all‐time high of 23.89 million units achieved in May. Compared to the 23.18 million units in Q1 2014, an average SAAR of 23.49 million units in Q2 2014 indicates that China’s light vehicle sales accelerated again in the quarter.

LMCA adds that the backbone of the pickup was still the passenger vehicle market, with sales in Q2 2014 expanding robustly by 13% on a year ago. The average SAAR in the quarter reached 18.47 million units, almost half a million units higher than in Q1 2014 and Q4 2013. The firm added its view that, as well as an end to the payback effect that resulted from inflated sales at the end of 2013, this uptick in Q1 2014 can be attributed largely to panic buying in China’s tier‐2 cities, which was inflated again when, in March, Hangzhou, the capital city of the eastern Zhejiang province, joined the list of cities which imposes restrictions on car purchases.

Owing to increased growth in China’s top‐tier cities, the trade‐up trend in China’s passenger vehicle market extended even further in recent months. The mini car and sub‐compact car segments saw sales fall by 16% and 6% year‐on‐year (YoY), respectively in Q2 2014, while the compact car and midsize car segments saw sales expand by 12% and 5% YoY, respectively in the same time span. Comparatively, sales of locally made premium cars in the quarter jumped by 23% on the previous year.

SUVs and MPVs remained the fastest growing segments in the Chinese market, with sales of locally made models in the quarter surging by 37% and 21%, respectively on the previous year. More significantly, as more sub‐compact SUVs have been introduced into to the market, segment sales soared by over 50% YoY in Q2 2014.

In contrast, sales of light commercial vehicles dropped by 4% and 9% in April and May, respectively, leading to a YoY decrease of 3% in Q2 2014 as a whole; the truck and pickup segments saw sales shrink by 13% YoY collectively in the quarter. Moreover, the SAAR of light commercial vehicle sales in June fell to 4.78 million units, a 16‐month low since February 2013.

LMCA said it believes that the driving force behind this decline is the uncertainty surrounding how strictly China’s IV emission standards for light commercial vehicles will be implemented. OEMs held back on wholesales given the lack of products able to meet the strict new standards, while customers adopted a wait‐and‐see approach given the higher purchasing cost.

Looking further ahead, the firm expects passenger vehicle sales to grow by 12% YoY in H2 2014. This compares with the YoY growth of 13% achieved in H1 2014. Adding to the downside risk is the dealer‐level inventory, which climbed to 1.69 months at the end of June and exceeded the level of 1.53 months at the same time last year, according to the China Automotive Dealer Association. The upside risk for the short term, however, is that the possibility remains for more of China’s tier‐2 cities to follow suit and introduce car purchasing quotas, which LMCA believes will bring forward more buying activity.

For light commercial vehicle sales, the firm does not expect the YoY decline to continue much longer. Facing the reality of worsening air conditions, as well as the considerable cost of product upgrades to meet the new standards fully, it believes that the government and the market will meet in the middle. It has revised its annual sales growth of light commercial vehicles down to 1% for 2014 as a whole, but it also means that sales in H2 2014 are expected to see a YoY growth of 3%, given a yearly decline of 1% in H1 2014.