Urban middle class boosts China car sales

The Financial Times, April 11, 2013

Strong economic growth and consumer confidence boosted first-quarter car sales in China as the mainland shook off last year’s weakness to resume strong double-digit growth.

Light vehicle sales in the world’s largest vehicle market rose 17 per cent to 4.42m in the first three months of the year. In March alone, sales of cars, sport utility and other passenger vehicles climbed to almost 2m, the China Association of Automobile Manufacturers said on Thursday.

“China’s auto industry delivered solid double-digit growth, driven by continued expansion of its population of urban middle-class buyers,” said Bill Russo of Synergistics auto consultancy in Beijing and the former head of Chrysler in China.

But he warned against over-optimistic assumptions about future market growth, which has led to excess capacity in the past, especially among state-owned domestic carmakers.

Local independents Geely and BYD recently said they were optimistic about auto demand this year with the new government leadership in place.

“We are confident about this year’s growth,” said Lawrence Ang, executive director at Geely in Hong Kong last month. “China’s overall economy will be improved from last year, helping to boost vehicle demand.”

However, Bernstein Research analyst Max Warburton cautioned in a recent note that despite stronger than expected first-quarter sales in China, future yearly growth was not likely to exceed 6-7 per cent.

“Capacity additions still look set to outstrip demand,” he said, adding that he expected the industry to add at least 3.8m units of capacity by the end of the decade.

European and American car brands continued to take market share from Japanese rivals in China in the first quarter, auto analysts said, as the continuing political impact of a dispute over a set of islands left Japan’s carmakers struggling to recover ground.

Luxury car sales in China continued to moderate from previous high double-digit levels, partly affected by the government’s austerity programme, which may have caused some buyers to delay ostentatious consumption.

But medium-term growth in the luxury sector is expected to remain strong as few retail analysts are predicting permanent impact from the austerity campaign.

“Compared to the US, Chinese [luxury car sales] will continue to grow at a stable and sustainable rate whereas the US and Japan are simply recovering from lost volume. China’s luxury market will likely double in size over the next five years,” Mr Russo said.

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