China Car-Sales Growth Slows on ‘Diminishing Wealth’

Business Week, June 1, 2010

June 1 (Bloomberg) -- China’s passenger-car sales growth slowed in May as falling stock prices eroded wealth and consumer prices rose in the world’s largest automobile market.

Sales of cars, sport-utility vehicles and multipurpose vehicles rose 25 percent from a year earlier to 885,800 last month, the China Automotive Technology & Research Center said in an e-mailed statement today. That compares with 34 percent growth in April, according to the center.

The Shanghai Composite Index fell 9.7 percent in May as Chinese stocks remained among Asia’s worst performing this year. A “diminishing wealth effect” along with high gasoline prices may contribute to a slowdown in auto sales, Credit Suisse Group AG analysts Adrian Chan and Hung Bin Toh wrote in a report last week. Vehicle sales could decline from year-earlier levels in the second half of 2010, they said.

“China had a sharp and noticeable ramp-up of sales last year, and it’s impossible to imagine the country maintaining the same type of growth momentum,” said Bill Russo, a Beijing-based senior adviser at Booz & Co., which advises automakers and investors. Russo said he expects demand growth to level out toward the end of the year.

China’s target of keeping inflation under 3 percent this year “will be a difficult task” because of rising prices for bulk commodities including oil and disruptions to some agricultural production, Yao Jingyuan, chief economist at the China statistics bureau, said May 28.

Tax Cut

China’s passenger-car sales have risen every month since February 2009 after the government halved the consumption tax on small vehicles to 5 percent the preceding month, according to separate data from the China Association of Automobile Manufacturers. The tax was increased to 7.5 percent this year.

Monthly passenger-car sales growth slowed in April to the most sluggish pace since March 2009, according to the manufacturers association, as China’s consumer prices rose 2.8 percent from a year earlier.

“Stimulus policies are gradually being phased out, and the number of consumers who advanced their purchases to take advantage of these policies is dropping,” Zhao Hang, head of the Automotive Technology & Research Center, said today in Beijing.

China’s total stockpile of vehicles parked at passenger-car makers and dealers rose by 64,900 units in May from April, the center said in today’s release.

Rising vehicle inventories among dealers and manufacturers, coupled with slowing demand, could lead to a price war, Credit Suisse said in its report last week.

Honda, Nissan

China’s vehicle sales may rise 17 percent this year to 16 million, and annual demand for automobiles may eventually exceed 30 million, according to the State Information Center.

Automakers including Honda Motor Co., Nissan Motor Co. and Volkswagen AG are rushing to add production capacity in China even as demand growth slows.

Honda aims to be able to make 830,000 vehicles a year in the nation by the second half of 2012, or 28 percent more than now. A strike by employees demanding higher pay shut the company’s Chinese factories beginning last week and talks continue over re-opening the plants.

Nissan plans to boost local capacity to 900,000 vehicles a year by 2012 and to expand further after that, CEO Carlos Ghosn said last month.

Volkswagen, FAW

Volkswagen and partner China FAW Group Corp. plan to invest 8 billion yuan ($1.2 billion) to build a plant in the city of Foshan in southern Guangdong province, according to the Foshan city government.

Total vehicle sales, which also include buses and trucks, increased 29.7 percent last month to 1.19 million. China’s automobile exports rose 54.9 percent year-on-year in the first four months of 2010 to 149,800 vehicles, today’s release said. Total imports rose 174.6 percent to 255,500.

The Automotive Technology & Research Center, affiliated with the state-owned Assets Supervision and Administration Commission, assists the government in formulating automobile industry standards, technical regulations and product certification testing.

--Tian Ying. Editors: Terje Langeland, Chana Schoenberger.


Global marque still eludes the Chinese

Financial Times, June 1, 2010

Last year, more cars were sold in China than anywhere on Earth, but only one-third of them were Chinese brands. That means two-thirds of mainland drivers do not want a Chinese car – hardly a vote of confidence in domestic brands.

As the balance of power in the global car industry shifts to the east, motor manufacturers are watching closely for the emergence of a globally competitive Chinese car brand.

Last year was a watershed for Chinese carmakers as their domestic market took first place globally and local carmakers bought some or all of famous foreign brands such as Saab and Volvo.

But building a world-famous Chinese car marque remains a distant dream, say car analysts.

“Chinese car companies must first convince Chinese consumers of the quality of Chinese-branded cars before they can expect wide acceptance in overseas markets,” says Bill Russo, head of Synergistics car consultancy in Beijing and former head of Chrysler in China.

Ivo Naumann, of motor industry advisers Alix Partners in Shanghai, says there will not be a major global Chinese brand with significant market share in a leading market outside China in the next five years or so, though he says he is “absolutely sure that it will happen some day”.

But that is an improvement. Until recently, when asked how soon a Chinese brand could reach globally competitive status, car industry analysts and insiders used to say it would take a generation.

“It took the Japanese decades, it took the Koreans a decade, it probably will take the Chinese less,” says Mr Russo. “[In] one or two product cycles – in 5-10 years – we will see Chinese-branded cars in the mature markets.”

China’s carmakers have made good progress towards that goal. Last year, the local market grew 45 per cent. The share of Chinese companies has risen from 21 per cent in 2004 to 32 per cent in 2009. Mr Naumann expects them to add another 5 percentage points by 2015.

China’s carmakers have developed. Those that previously had a limited range of models can now span the full spectrum, with the number of domestic models rising from 53 in 2006 to 159 last year.

But their approach to branding is “not yet mature” says Mr Russo. He says that while Geely and Chery, two private carmakers, are furthest along in articulating a branding strategy, “they still have to prove that their cars actually represent something more than just lower-priced alternatives to foreign-branded cars”.

Geely, whose parent company recently bought Volvo, is under no illusions that it can use the Swedish brand to sell Chinese cars in western markets. In fact, it is so worried about the reputation of Chinese brands abroad, that it plans to keep Volvo production and research and development in Europe for the foreseeable future. The move is designed to help sales, not just in Europe, but in China too, where foreign brands still command a premium.

Wang Fengying, chief executive of Great Wall Motor, the first Chinese carmaker to win regulatory approval to sell its vehicles throughout the European Union, says China will struggle to export its cars to Europe or other developed markets until it first overcomes the stigma of the “Made in China” label.

Ms Wang says “it could take 20 years” before the country’s brands can reach true global competitiveness.

She argues that it may not take China as long to establish a global brand as it did Toyota, “but it would be hard to establish a brand like Toyota in a short time”, she says.

Click here to read the original article posted at FT.com