China car sales slow as US roars back

The Financial Times, January 12, 2012


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Chinese vehicle sales grew just 2.5 per cent last year, as the withdrawal of government stimulus measures tamed the exuberance of the world's largest auto market.

By contrast, the US last year bounced back to become the world's fastest-growing big car market, with car and light truck sales climbing about 10 per cent. But at an estimated 12.8m units last year, US light vehicle sales were still far below China's 18.5m.

A decade ago, the US auto market was at least 10 times the size of China's. “Any relative comparison of the growth rates between then and now is rather irrelevant,” said Bill Russo, head of Synergistics auto consultancy in Beijing and former head of Chrysler in China.

Some Chinese car buyers may have held off purchasing cars because of credit tightening or fears of inflation, but few analysts see the slowdown as a bellwether of slower Chinese economic growth.

Most Chinese auto analysts believe the main reason for the slowdown was the withdrawal of tax incentives introduced by Beijing as part of a 2008 economic stimulus package, which helped boost total vehicle sales 46 per cent in 2009 and 32 per cent in 2010.

Those incentives, for small engine cars and mini commercial vehicles, were withdrawn completely last year. Car sales – a category that does not include small commercial vehicles that were hit hard by the incentive cancellation – rose 5.2 per cent to 14.5m.

Foreign-invested carmakers did better. General Motors last week said China sales rose 8.3 per cent last year, well below 2010's 29 per cent but significantly above an expected 4 per cent rise in sales for the total Chinese market, while Ford reported a 7 per cent year-on-year increase.

Analysts believe vehicle sales could rebound. “The times of disproportionate growth in 2009 and 2010 are definitely over,” said Klaus Paur, auto market analyst at Ipsos, the market research company.

But Mr Paur still expects 10-12 per cent growth in the car market this year, which "can be considered healthy and significant . . . in light of the long-term potential of the Chinese market".

Bill Russo, head of Synergistics auto consultancy in Beijing and former head of Chrysler in China, added: “Continued growth of the urban middle class, along with continued investment in China’s transportation infrastructure, will continue to fuel demand growth for the foreseeable future.”

He expects China to be a 20m total vehicle market in 2012.