Analysis and Forecast of the Medium Truck Market in the Third Quarter, 2012

1. Analysis of Production and Sales in Medium Truck Market
The domestic economy has suffered a slowing growth since the beginning of the year, leading to the downward trend in the truck market. As statistics released by China Association of Automobile Manufacturers (hereafter referred to as “CAAM”) shows, sales and production of domestic made trucks reached 2,394,931 and 2,452,844 respectively in the first 9 months in 2012, raised by -8.94% and -10.46% on a year-on-year basis.

In the subdivision of truck market, micro truck market grew slightly under the new round of “Bringing the Vehicles to Rural Areas” promotion. The heavy truck market slid by 30%, medium and light truck dropped over 6% and 5% respectively. In terms of market share, light truck led half of the market with a 2.85% of growth; 16% of the market share was share by medium truck, an over 2% growth; medium accounted for 8% of the market share with a near 1% growth. The sales and market share both declined over 5% for heavy truck. (See Chart 1)

In the first 9 months of 2012, sales in Feb. exceeded that over last Feb. and sales in Aug. and Sep. remained equally the same. For other months, sales went below that over the same period last year, during which, sales reached the bottom in Jul. The market demand was drove to rise by the 400 billion Yuan stimulation plan in Aug. and Sep. during the reconstruction after flood in some regions. (See Diagram 1)

In the subdivision of medium truck market, sales of large and low tonnage medium truck both grew. According to the statistics released by CAAM, sales of large tonnage medium truck (12 ton<total tonnage≤14 ton) and low tonnage medium truck (6 ton<total tonnage≤8 ton) reached 21,947 and 56,658 respectively, growing by 3.68% and 0.53% over the same period last year. The market share of the two kinds accounted for 17.66% and 45.59%, growing by 2.18% and 4.39% respectively. (See Chart 2)

The customization of domestic medium truck market speeded the pace in the first three quarters of 2012. As CAAM reveals, the total sales of medium special cargo truck, operation truck and medium truck chassis reached 110,871 from Jan. to Sep. with a growth of -2.30% on a year-on-year growth. Sales of medium truck (chassis included) reached 201,143, accounting for 55.12% of the market share, growing by 2.25% over the last year of 52.87%.

Due to chassis flow into the SPV sector for improvement of the vehicles, sales of medium truck chassis partially reflect the condition of SPV market. Seen from this, sales of medium SPVs among medium trucks have exceeded half of the total with narrow growth.

2. Industry Competition Analysis
20 manufacturers (including chassis) were on the list of CAAM statistics with the total sales of 201,143 units during Jan. to Sep. 2012, growing at the rate of -6.29% over the same period last year. Among the 20 manufacturers, 8 reached the sales of over 10,100 (See Chart 3) with the total sales of 172,771, a year-on-year growth of -8.41%, which was slower than the industry average (-6.29%) by 2.12%. Market share of the 8 manufacturers accounted for 85.89%, falling by 1.98% over the same period last year. Besides the sales of Sinotruk and Jun Tang Ling Ou exceeding 10,000, others in this group fell sharply, among which, FAW fell by single digit while other brands fell by double digit.

In terms of ranking, Dongfeng Auto, FAW and Jun Tang Ling Ou remained the leading positions while other manufacturers encountered huge change in ranking. Among which, Sintotruk rose from the 8^th to the 3^rd, leading the one step backward of Lifan, Qingling and CNJ to the 4^th to 6^th. Meanwhile, JAC dropped from the 6^th to 8^th.

In terms of chassis sales, 6 medium truck chassis manufacturers in the list of CAAM reached the sales of 76,868 in the first three quarters, growing by -1.3% over the same period last year, which was the slowest declining category in the subdivision of chassis market. (Subdivision of chassis in heavy truck, light truck and medium truck fell by 35.38%, 6.87% and 80.32 respectively.) The figure has shown that the needs for medium SPV remained at the same level over last year in the domestic SPV market.

Dongfeng Auto ranked the first in the competition of chassis manufacturing market with the total medium truck chassis sales of 36,259, a year-on-year growth of -2.81%; meanwhile the market share of Dongfeng Auto reached 47.17%, falling by 0.73% over the same period last year. Sales of FAW reached 27,918, ranking the second with a year-on-year growth; market share of FAW reached 36.32%, growing by 1.72%. Sales of Qingling medium truck chassis reached 11,837, ranking the third with a decline to 10.91%; market share of the company fell by 1.66% to 15.40%. Sales of Foton medium truck rose rapidly to 71.73% with the total sales of 577, ranking the forth with market share of 0.75%.

Medium truck manufacturers rose rapidly in 2012. Since the beginning of the year, manufacturers of all tiers all joined the market with R&D and promotion of new products. In terms of new production R&D, Foton ranked the first, which was followed by Sinotruk, Dongfeng Auto and FAW.

FOTON
In 2012, Foton has lifted the speed in entering the medium truck market. Factories under Foton have been working tenaciously in the launch and promotion of new products.
In terms of new products, ADX technical version, Rowor medium truck 2012 version and Ollin medium 2012 version.

Foton has done better than other brands in terms of new products launch. Vehicle competition and various activities were held to win the market. Among which, Zhucheng and Ollin conducted that largest scale of product promotion. According to incomplete statistics, Zhucheng has held 4 activities aiming at the medium truck market.

Sales of Foton rose in a high speed in the first 9 months thanks to the previous efforts. 4,662 medium trucks were sold, reaching a 257.24% growth over the same period last year, meanwhile, the market share rose by 1.71 on a year-on-year growth to 2.32%. Industry ranking of the company also rose from the 14^th to 10^th. Growth of medium truck chassis of Foton ranked the first among all manufacturers.

SINOTRUK
In terms of new product launching, Sinotruk released HOWO-T5G, HOWO 5 Series, New Yellow River (C5B).

Sinotruk has achieved fruitful result this year. The total sales of medium trucks reached 16,295 in the first 9 months, a year-on-year growth of 75% to 76.11%. The market share also grew by 3.79% to 8.10%. Industry ranking of the company rose from the 8^th to 3^rd.

Dongfeng Auto
From Jan. to Sep., the total sales of Dongfeng Auto medium truck reached 57,213, a year-on-year growth of -10.74%, slower than the average growth (-6.29%), maintaining the first in industry ranking. The market share fell by 1.42% to 28.44%, among which, sales of vehicles and chassis reached 20,954 and 36,259 respectively, growing by -21.79% and -2.81%, their contribution to the total medium truck sales reached 36.62% and 63.38% respectively and the contribution to chassis rose by 5.17%.

FAW
FAW Jiefang released Sailong 160 horse power medium truck and Jiefang J6L medium truck.

4×2 and 6×2 Jiefang J6L are available in the market, according to different configuration, prices are positioned from 130,000 Yuan to 300,000 Yuan.

Sales of FAW Jiefang medium truck reached 31,318, growing by -7.47%, slower than the industry average of 1.18%. Sales of medium truck and chassis reached 3,400 and 27,918 respectively, growing by -50.72% and 3.60%, whose contribution to the total sales reached 10.86% and 89.14%, the contribution of medium truck chassis rose by 9.52%.

Baoji Huashan, who has stood out in 2008, also paid more attention on the medium truck market. Since its product transformation from medium truck to light truck, its medium truck market has been running on the downtrend. The return to the medium truck market has accelerated the R&D of new products and the construction of sales system

In terms of new products, through one year and with the near 100 million Yuan investment form Shaanxi Baoji Huashan, Xuande series heavy truck, medium truck and light truck have been released. Meanwhile, the company is putting more efforts in the R&D of methanol, dimethyl ether and hybrid products. At the same time, sales networks are being established in several provinces in the following months.

3. Analysis of Influential Factors
The medium truck market has been operating on the low run since the beginning of the year, which was mainly influenced by the following factors.

(1) Macro economy. Influenced by the slowing growth of investment, export and consumption, which are considered as the three driving powers for domestic economy, the confidence in consumers reduced, therefore, constrained the demands for vehicles.

(2) Market supported by indemnificatory housing and infrastructure. According to the statistics from Ministry of Housing and Urban-Rural Development of the People's Republic of China, 7.2 million projects of indemnificatory housing were started during Jan. and Sep., the operating rate was 97% and a total housing of 4.8 million were completed with the investment of 960 billion Yuan.

Policies regarding to the renovation and liquidation of refitting vehicles have been implemented. Regulation and control on real estate market and reduction of coal mines have led the severe stagnation in sales of medium and heavy truck, among which, engineering truck suffered the most.

(3) Decline in investment of fixed asset. As shown in the statistics, the fixed asset investment grew by 20.2% from Jun. to Aug. over the same period last year, dropping by 0.2% compared with Jul. On one hand, the decline in investment of fixed asset and real estate has directly influenced the sales growth in medium trucks; on the other hand, the rise in international oil price and the low freight rates exacerbated the profit, postponing the purchase plan for customers.

(4) Slowing growth in volume of road freight. According to Ministry of Transportation domestic volume of road freight and volume of the circular flow reached 2,055,005 and 374,023,054 10k ton. km.

(5) More cities implemented restrictions on cargo trucks.

4. Future Prediction
Factors that influence the medium truck market are as follows:

(1) Local edition of 4 trillion Yuan keep rising in popularity. According to statistics, a number of municipal governments have released their investment on large scale projects with the total amount reaching 4 trillion Yuan.

(2) Acceleration in investment from the Ministry of Railways. The investment in the fourth quarter has nearly reached that in the first 9 months. From Jan. to Sep., the fixed asset investment was 344 billion Yuan, leaving the last three months with 300 billion Yuan investment.

(3) Coal demands come to the peak. With the coming of winter, the demand in coal has come to the peak. Take Shaanxi as an example, to ensure the production and sales of coal, Shaanxi province has implemented the reduction in toll on coal transportation vehicle, which has stimulated the demands for SPVs in this category.

(4) The transition of leadership may push the market to a further growth.

(5) Special renovation on yellow label vehicles and other relevant activities may be the driving power to the sales in market.

To sum up, the sales of medium truck in the fourth quarter may reach 78,000 units with a year-on-year 2% growth and the annual total sales is expected to reach 280,000 with a 4% drop on a year-on-year basis.