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January 27, 2014

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Home » Business » Autotalk Special

Hyper-growth auto sales may be gone, but China market ‘still the place to be’

Source: Agencies | January 27, 2014, Monday | Print Edition

The world’s biggest auto market will likely sustain the momentum it regained in 2013, helped by an anticipated array of economic stimulus measures and robust demand for cars in smaller cities of China’s interior regions, according to industry executives and analysts.

The new year should mark a second year of double-digit growth for China after sales expansion rates slumped in 2011 and 2012 to 2.45 percent and 4.33 percent, respectively. In the previous 10 years, auto demand in China often surged 30 to 40 percent annually. Those hyper growth days are over, but last year the Chinese market rebounded convincingly. In 2013, sales in China rose 13.9 percent to 21.98 million vehicles, according to the China Association of Automobile Manufacturers (CAAM).

“We believe clearly for anybody working in the automobile industry, if there’s one place to be, it’s China,” said Hubertus Troska, head of Daimler AG’s China operations that include Mercedes-Benz.

“If things continue well, there’s a good chance that the automobile market in China will grow again double-digit this year,” said Troska, who is also a member of Daimler’s management board.

The revived strength of China’s auto market is a relief to global automakers whose business is still impaired by sluggish demand in Europe and an anticipated slowdown in growth in the United States this year.

Volkswagen AG, for example, had forecast vehicle demand in China to grow at annual rates of between 5 and 7 percent over the next five years. Jochem Heizmann, head of Volkswagen’s China operations, said he believes the German automaker might have been too conservative.

As demand appears poised to expand much faster, “we could sell more (cars) if we have more capacity,” Heizmann said.

LMC Automotive forecasts an increase of 11 percent this year in China’s overall automobile market for passenger cars and commercial vehicles — a forecast echoed by Shanghai-based consulting firm Automotive Foresight. IHS Automotive, another consulting firm, predicts demand to grow 9 percent. CAAM said China’s overall demand for automobiles will likely grow 8 to 10 percent this year.

What’s driving demand

The main support for auto sales, experts say, will likely come from continued strong economic growth in China’s interior provinces, as opposed to the previous decade and a half when the bulk of growth was generated in the country’s coastal provinces.

Another supportive factor is a series of fresh stimulus measures seen likely to be implemented this year by China’s new leadership under President Xi Jinping.

Those factors, combined with steady personal income growth backed up by falling vehicle prices, will help ensure a second straight year of double-digit growth, according to Yale Zhang, head of Automotive Foresight.

The Chinese market should be able to comfortably overcome demand-sapping pressures such as auto sales restrictions now being implemented in a growing number of big cities, Zhang and others said. Those sales caps in cities including Shanghai and Beijing are aimed at cutting air pollution and congestion.

Among global automakers, Volkswagen, General Motors Co and Ford Motor Co are likely to benefit most from a second year of relatively strong growth. Volkswagen, GM and Ford market some of China’s best-selling cars, such as the Volkswagen Lavida, the Buick Excelle, and the Ford Focus.

The future for Japanese automakers in China, by contrast, remains clouded. Japanese brands led by Nissan Motor Co Ltd, Toyota Motor Corp and Honda Motor Co Ltd are seen unlikely to benefit fully from China’s renewed strength because of lingering political tensions.

Sales on a month-by-month basis recovered to pre-crisis levels for many Japanese brands toward the end of last year. Toyota for instance forecast 20 percent growth in China sales to about 1.1 million vehicles this year, compared with year-on-year growth of 9 percent in 2013. Still, some industry executives and analysts doubt a convincing reversal of fortunes for Japanese automakers. The main source of worry comes from Japanese Prime Minister Shinzo Abe’s visit last month to the Yasukuni war shrine that is seen by critics as a symbol of Japan’s wartime aggression.

Already, the collective Japanese share of China’s passenger car market fell to 16.6 percent in 2013 from 23 percent in 2011, according to LMC Automotive, following the flare-up of anti-Japanese sentiment triggered by the territorial dispute in late 2012. That year, Japan’s share fell to 19.2 percent.

 

Autotalk Special


 

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