June 3, 2014 / 9:03 AM / 3 years ago

RPT-Fitch: Little Benefit to EU Carmakers from China Pollution Curbs

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June 3 (Reuters) - (The following statement was released by the rating agency)

China's recently-announced measures to curb air pollution in its major cities could boost car sales in the short term, Fitch Ratings says. However, we believe that direct benefits for European car manufacturers will be limited. We also expect a slightly negative impact from these measures on new car sales in the medium term, although growth in China should remain solid in comparison with other key markets.

The Chinese government wants to limit the significant air contamination in several large cities through restrictions on new car purchases and incentives to phase out old vehicles. A recent example is the offer of subsidies of between 2,500 and 14,500 yuan (approximately EUR300-EUR1,700) in Beijing to replace more than 200,000 vehicles registered before 2005 that do not meet the latest emission standards. This follows a 40% reduction in the number of new license plates issued amid plans to limit the number of cars on the road to 5.6m in Beijing.

We believe customers will bring forward purchases in the near term to take advantage of these incentives or rush to buy a car before they are restricted from doing so. We forecast the phase-out measure could incrementally increase passenger car sales by 1m-1.5m in 2014-2015.

While these measures look set to favour companies with exposure to China, we see limited benefits for most European manufacturers. Premium brands BMW, Daimler and Volkswagen's Audi have high exposure to the country, but subsidies of a few hundreds euros are unlikely to be a major selling point for high-end brands, especially for customers trading in an old car. Among mass-market brands, Volkswagen is already constrained by its production capacity in the country, which is running at full steam. Peugeot, however, could profit from the additional demand, notably for its entry-level models. Renault and Fiat still have very small market shares and exposure to the country and incremental sales should be limited.

We anticipate a "payback" effect with sales being hit once all the restrictive measures come into force and when incentives are over. This would mirror what happened in Europe when scrapping incentives were implemented to support the sector in 2009 and subsequently withdrawn.

We believe though that long-term growth prospects for new car sales in China will be largely unaffected as the growth potential in eastern regions is substantial and GDP per capita continues to grow. In parallel, we expect sales of vehicles with alternative and more fuel-efficient powertrains such as electric or plug-in hybrids, to gain traction. In particular, we expect the Chinese government to increasingly promote these powertrains and accelerate investment in infrastructure necessary for electric vehicles.

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