American Automakers Losing Footing in China's Wonky Market

Matt Posky
by Matt Posky
american automakers losing footing in chinas wonky market

Last week, we looked at how the world’s largest automotive markets are coping. If you’re interested in an abridged version, they could all be doing better. We also noted that China was getting around to summarizing its summer sales data. Well, that ship has since come in, and it was full of corpses. The country has endured three straight months of falling car sales after years of consistent growth.

As the world’s largest automotive market, China impacts just about every other industrialized nation on the planet. Unfortunately, the China Association of Automobile Manufacturers (CAAM) reported that influence helped the market share of U.S. brands fall to 10.7 percent in the first eight months of 2018 versus 12.2 percent just one year earlier. The association’s assistant secretary general, Xu Haidong, said this decline could be attributed to American firms inability to refresh their lineups in a timely manner and definitely had nothing to do with the trade war, anti-American sentiments, or the boycotting of U.S. brands by Chinese consumers.

We don’t live in China, so we’ll have to take Xu’s word for it. However, Bloomberg reports that higher retaliatory tariffs imposed by China on American-made cars have caused pricing uncertainty, leading to anxiety among prospective customers.

In July, China lowered duties on all imported vehicles from 25 percent to 15 percent, after promising to finally ease up on some of its protectionist policies. But the country followed that up by increasing tariffs on all cars built in the U.S. to 40 percent, leaving those models with a severe handicap. Ford promised not to elevate prices in Asia to cope with the new fee, only to be criticized by Xu for not having the freshest of lineups.

The automaker reported a 36 percent drop in Chinese sales in August as demand fell for locally assembled vehicles. Ford has cited numerous problems this year, including lackluster dealer profitability and excess stocking of certain models. It’s fighting to hold onto its share of the market, but appears to be losing the war. However, sales of Ford-branded imported vehicles rose by 15 percent, assisted by increased demand for the F-150 Raptor and the Mustang.

Meanwhile, General Motors and its government-mandated joint ventures delivered 858,344 vehicles in China for the second quarter of 2018. Sales grew 0.7 percent from a year earlier. While an overall improvement, it still represents a slowed growth rate for the region. Cadillac and Baojun brands still achieved record deliveries for the second quarter and Chevrolet continued to post double-digit growth, though GM is aware the market is slowing down.

In that respect, China is no different than any other high-volume region, but there are some aspects that set it apart. The yuan hasn’t performed well this year and the Shanghai Stock Exchange dipped 18 percent since the start of 2018. China is also experiencing a sudden, mysterious decline in SUV demand.

According to CAMM, July’s SUV sales contracted 8.4 percent from a year earlier to 633,000 deliveries. Sedan sales shrank 1.2 percent to 815,000. August was only slightly better for China, with SUVs shrinking just 4.7 percent vs the previous year. Meanwhile, gasoline-electric hybrids and pure EVs have both seen ludicrous amounts of growth in China — despite being only a small fraction of the overall market.

Why is this important? The vast majority of American auto exports into China for 2018 were utility vehicles. The BMW X5 and Mercedes-Benz GLE (assembled in South Carolina and Alabama, respectively) are the most prolific examples. But almost everything that ships into China with any meaningful volume qualifies as an SUV or crossover.

“Winter is coming,” said Cui Dongshu, secretary general of the China Passenger Car Association. “Demand for SUVs may continue to slide through the year.”

[Image: Ford Motor Co.]

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  • Peter Gazis Peter Gazis on Sep 12, 2018

    nivinen I saw a Japanese car broken down on the side of the road the other day. Do you think designing cheaper cars for the Chineese market is linked to the drop in reliability of Japanese vehicles sold in the U.S.A.

    • Nvinen Nvinen on Sep 12, 2018

      There are some Japanese cars which seem to be designed specifically for the Chinese market but for the most part, they look like the same cars we get, but maybe only with the smaller engines. Most Japanese cars for the Chinese market would be built in China. I doubt that any changes they make for those cars would affect vehicles built outside of China. Most cars globally already have lots of Chinese-made components anyway (especially electronics). So no, I doubt that has anything to do with it. The last modern vehicle I saw broken down was a Range Rover. Can't say I was surprised...

  • Bd2 Bd2 on Sep 12, 2018

    One would have to be really naive to think that Beijing wasn't behind some of the drop in the sale of US brands. The Japanese first experienced the brunt of the wrath of Beijing and then the Koreans.

    • Lorenzo Lorenzo on Sep 13, 2018

      That's bad news for GM as well as the Japanese and Koreans. If the Chinese did it before, they can do it again. There's no shortage of issues that can come up with the Japanese and Koreans, and cause another squeeze, and the Tariff war does no favors for GM. The Chinese don't seem to realize Trump holds the high cards in a trade situation where China needs it's $500 billion in exports to the US more than the US needs its $100 billion in exports to China. The Chinese are continuing the tit-for-tat tariff raising when they should be seeking a deal. That's what Trump's tariff ploy is all about, forcing other countries to renegotiate deals. The Chinese need to save face is running up against Trump's need to win on trade.

  • NJRide Now more than ever, the US needs a brand selling cheaper cars. I know the old adage that a "good used car" is the best affordable transportation, but there has to be someone willing to challenge the $45k average gas crossover or $60k electric one that has priced out many working and middle class people from the market. So I think Mitsu actually may be onto something. Call me crazy but I think if they came up with a decent sedan in the Civic space but maybe for $19-20k as opposed to $25 they might get some traction there's still some people who prefer a sedan.However, I just compared a Trailblazer on Edmunds to an Outlander Sport. Virtually same size, the Trailblazer has heated seats, keyless ignition and satellite radio and better fuel economy for almost same price as the Mitsu. Plus a fresher body and a normal dealer network. This has always been the challenge off brands have had. Mitsu probably would have to come in $2-3k less than the Chevy unless they can finance more readily to the subprime crowd.
  • MaintenanceCosts At least on the US West Coast, Waze is perfectly happy to send cut-through drivers down residential streets or to disregard peak-hour turn or travel restrictions. I hope if it's going to be standard equipment the company starts taking a more responsible approach.
  • MaintenanceCosts I'm more curious about the effect (if any) on battery lifetime than range. Drawing current faster creates more heat and if that heat is not promptly drawn away it could affect life of the cells.I agree this sort of thing can make sense as a one-time option but is consumer-hostile as a subscription.
  • Ajla "The upgrade is permanent" 🤔Journos really should be calling out the automakers like Mercedes that are attempting to make this sort of thing subscription only because it obviously doesn't need to be."with a one-time price tag of $1,195"This also shows the poor consumer "value" of Mercedes wanting $1200 per year for a 60hp jump on the EQE350.
  • Dukeisduke Will the next owner have to pay up, too, like with Tesla? What's the starting price of the Polestar 2? I saw a clean used one listed locally the other day, and it was under $50k. I wasn't sure if that was a deal or not.