China Ends U.S.'s Reign as Largest Auto Market (Update 1)

BusinessWeek, January 11, 2010

Jan. 11 (Bloomberg) -- China's 2009 vehicle sales rose 46 percent making it the world's largest auto market, a title held by the U.S. since the Model T Ford went into production a century ago.

The nation's vehicle sales rose to 13.6 million units, according to the China Association of Automobile Manufacturers. In the U.S., sales slumped 21 percent to 10.4 million vehicles, the fewest since 1982, according to Autodata Corp.

China's vehicle sales have surged since 1999 as economic growth averaging more than 9 percent a year boosts consumer spending in the world's most populous nation. The market will likely remain larger than the U.S., even as sales slow this year on a reduction in tax cuts, according to Booz & Co.

“China is becoming the center stage of development for the 21st century global auto industry,” said Bill Russo, a Beijing- based senior adviser at Booz & Co., which advises automakers. “Economic growth has directly translated into growth in automobile sales.”

Halving Tax

China's government last year halved the sales tax on new vehicles to 5 percent and offered 5 billion yuan ($732 million) in cash to replace old ones, insulating the country from slumping global demand. The Chinese government announced plans on Dec. 10 to scale back the measures, including raising the tax on new vehicles with engines of 1.6 liters or smaller to 7.5 percent.

China's vehicle ownership climbed to 51 million by the end of 2008 from 1 million in 1977. Per capital disposable income for Chinese households increased 46-fold in nominal terms during the period, also making the country the world's biggest markets for products such as cell phones, beer and microwave ovens.

Automakers such as General Motors Co. and Volkswagen AG have targeted growing Chinese demand to compensate for slumping sales in the U.S. and Europe.

GM, the biggest overseas automaker in China, said on Jan. 4 that its Chinese sales rose 67 percent last year to a record 1.83 million vehicles. Shanghai General Motors Co. sold 727,620 cars last year, an increase of 63 percent. GM said in December it will sell a 1 percent stake in Shanghai GM to partner SAIC Motor Corp., China's largest domestic automaker. The $84.5 million deal will leave GM with a 49 percent stake in the venture.


Sales at SAIC-GM-Wuling Automobile Co., China's largest minivan maker, rose 64 percent to 1.1 million vehicles, accounting for about 60 percent of GM's China sales. The minivans are sold for as little as $4,000 each.

Ford Motor Co. is spending $490 million on a third plant in China, while Volkswagen plans to invest 4 billion euros ($5.7 billion) in the country by 2011. Seoul-based Hyundai intends to build a third Chinese factory as it aims to boost local capacity by 50 percent to 900,000 vehicles a year by 2011.

China had 117 automakers at the end of 2008, according to the automobile association, raising the possibility of overcapacity. Automakers should “keep their heads cool” to prevent expanding production beyond demand, Chen Bin, who oversees regulation of China's auto industry at the National Development and Reform Commission, said last year.

Henry Ford introduced the Model T in 1908 as the world's first automobile affordable for a mass market. The car was produced at the Piquette Plant in Detroit, helping the city become synonymous with the auto industry. GM, also based in the city, grew into the world's largest automaker.

The U.S. has since lost out to Asian carmakers producing cheaper and more fuel-efficient models. Toyota Motor Corp. ended GM's 77-year reign as the biggest automaker in 2008. General Motors Corp. and Chrysler also both filed for bankruptcy as the worst recession since the Great Depression sapped auto sales.

--Tian Ying. Editor: Patrick Harrington, Neil Denslow

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