Pessimistic Predictions For China Worry Western Automakers

Bertel Schmitt
by Bertel Schmitt
pessimistic predictions for china worry western automakers

China has been the engine under record earnings at German automakers such as Volkswagen, Daimler and BMW. China helped GM offset its heavy losses at Opel, and provided more than 2 million cars that earned GM the (some say undeserved) title of world’s largest automaker. All of them have invested heavily into added capacity in China. All of them have reason to be worried.

Gu Xianghua, deputy secretary general of the China Association of Automobile Manufacturers (CAAM) said today that total vehicle deliveries in China may grow less that 5 percent this year. He cited a tepid GDP forecast and rising fuel costs that put a damper on China’s mass motorization.

Experts are very worried by Gu’s prediction that demand for commercial automobiles may drop by as much as 8 percent. Commercial vehicle sales are seen as a leading indicator, dropping commercial sales indicate a dropping economy. Says Gu according to Bloomberg:

“The slowing macro-economy will make it difficult to secure loans for commercial vehicles, restrictions on car ownership such as in Beijing, and car ownership costs such as fuel and parking fees are increasing. All these factors will have an impact on car buying in China.”

Automobile sales were down by nearly six percent in January and February. Gu’s remarks indicate that March might not be much better.

The cooling-off of the Chinese car market so far had the biggest effect on indigenous carmakers that sell to lower income customers. Joint venture makers increased their market share. However, luxury makers are beginning to feel the pinch. Says Bloomberg:

Dealers for high-end car marques such as Mercedes Benz, Audi and BMW are dangling the biggest discounts seen since 2009 as competition intensifies and demand growth weakens.”

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  • Skor Skor on Mar 20, 2012

    Told you so. The rate of car ownership in China will not approach that of Western countries for some time.....if ever. It's not possible for a country of a billion plus people to replicate America's car culture under the current circumstances. America's car culture came about because of a serendipitous convergence of cheap fuel and booming postwar economy not likely to be repeated anywhere else anytime soon. If anything, American and Western European car ownership rates are destined to shrink.

    • Bertel Schmitt Bertel Schmitt on Mar 21, 2012

      China's car ownership is less than one tenth of that of the US. Car ownership in the US is around 800 cars per thousand pop. In China, it stands at around 60 per thousand. Car ownership does not have to get near US levels to make a huge difference. As far as ownership goes, the US pretty much stands alone in the western world. 500 to 600 cars per thousand is considered a normal rate.

  • Norma Norma on Mar 21, 2012

    "Sanford C. Bernstein estimates China generated about 30 percent of Audi’s earnings in 2010, and accounted for almost half of Munich-based BMW’s last year[2011]. " Ouch.

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