OREANDA-NEWS. Fitch Ratings expects China-based auto makers to face mild margin pressure in 2016. Fiercer competition would cause industry-wide margins to narrow under our mild-growth assumption, as manufacturers add production capacity and newer models. The SUV segment would be the most vulnerable in such a scenario, as the current fat margins have drawn many new entrants.

However, Fitch expects the large manufacturers, including Dongfeng Motor Group Company Limited (A/Stable) and Beijing Automotive Group Co Ltd (A-/Stable), to stay resilient amid short-term market cycles due to their diversified joint-venture/brand portfolios. Credit ratios would remain stable as we see JVs continuing to enjoy relatively healthy margins and generate positive FCFs.

The large manufacturers will also benefit from the overall industry recovery. Fitch expects auto sales growth in China to resume at mid-single-digit level in 2016 - after having stagnated since 2Q15 - supported by reduced taxes on certain vehicle purchases, recovering consumer confidence and low base effect.

SUVs will continue to lead sales growth in 2016 as customer preference shifts towards larger vehicles. Most auto makers have ramped up their SUV products offerings to capture this fast-growing and higher-margin segment.