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Photograph by Nelson Ching/Bloomberg
A General Motors Co.
Chevrolet dealership in Beijing, China
As a long Chinese
holiday came to an end Wednesday, drivers heading into Beijing needed more
patience than usual. Even on ordinary workdays, big traffic jams are
unavoidable in the Chinese capital, as more and more people switch from bikes
to cars. And at the conclusion of a three-day holiday for Qing Ming, the
traditional festival when Chinese go to the graves of family members, the roads
into Beijing were jampacked. That’s life in the world’s largest auto market:
Chinese bought almost 16.5 million autos last year, up from 7.56 million in
2009. Vehicle sales in China have jumped more than fivefold in the past decade.
No wonder
automakers such as General Motors (GM), Ford (F), Toyota (TM), and Volkswagen (VOW) all have great hopes for the Chinese market. GM reported on Apr. 5 that its Chinese ventures sold 258,000
vehicles in March. That’s an 11 percent increase over the same period last
year. For the first quarter, sales rose 8.7 percent, to 745,000 vehicles,
according to GM’s statement. Volkswagen’s Audi brand is on a roll as well, with
the company announcing a 40 percent increase in China and Hong Kong sales for
the first quarter of 2012. Sales in March jumped 37 percent, to a record 31,500
vehicles, VW said in a press release.
Ford, which for
years has been trying to catch up in China to its rivals from Europe and Detroit,
announced some China news Thursday, as well. Ford revealed plans to expand
further in China, with the company and its Chinese joint venture, Changan Ford
Mazda Automobile, investing $600 million to increase capacity at their plant in
the southwestern city of Chongqing, where Ford already has two assembly plants,
an engine plant, and factories to make engines and transmissions now under
construction. Even before the latest expansion, Chongqing was Ford’s biggest
production facility outside Michigan, the company said, and the new investment
will add capacity of 350,000 vehicles, lifting total capacity to 950,000
vehicles a year.
Ford also will
unveil four new vehicles at the Beijing auto show in late April, including
three SUVs and the midsize Ford Focus. In March, Ford sold 1 billion yuan of
so-called dim sum bonds, notes sold in Hong Kong and denominated in China’s
currency. The company wants to use money from the dim sum bond sale to
help fund operations in the Chinese market.
Automakers
counting on Chinese sales, however, to rev up growth have good reason to worry
that the country’s market is no longer in the fast lane. On March 20, an
official from China’s state-backed auto association warned of a slowdown. Not
only are auto sales unlikely to hit their 8 percent growth forecast, said
GuXianghua, deputy secretary general of the China Association of Automobile
Manufacturers; even hitting 5 percent growth might be a stretch. One troubling
sign comes from Toyota. Its sales in China were up just 2.2 percent last
month, the Wall Street Journalreported. Toyota can’t blame a high base effect for the
lackluster performance, since its Chinese sales for all of 2011 rose only 4.4
percent.
If Gu is right
and China’s auto market slumps, some European automakers are particularly at
risk. For instance, China is now the largest market for Bentley, the
superluxury marque owned by Volkswagen. Bentley’s China regional sales grew 85 percent last year, VW reported on its website Wednesday.
China accounted
for 17 percent of BMW’s sales last year, according to a financial analysis by
Bloomberg. The German company’s Chinese revenue increased 37 percent last year,
from €8.4 billion in the 2010 fiscal year to €11.6 billion in 2011. China was
BMW’s fastest-growing market and for the first time exceeded BMW’s U.S. sales.
The only place where BMW has higher sales now is its home market, Germany.
As the Chinese
market slows, though, prestige-brand automakers have some reason to be
optimistic. Even as overall sales slump, the luxury market is showing
resiliency. According to a report in the official China Daily newspaper,
the luxury market far outperformed last year. “Sales of luxury vehicles
maintained a strong momentum when China’s overall automobile market slowed down
sharply in 2011, with total sales of up to 950,000 units,” the newspaper
reported. “The sector’s growth of 38 percent over the previous year is almost
eight times the rate of the passenger vehicle sector’s 5.19 percent.”
Companies have to work harder to
win those sales, though. Mercedes, BMW, and Audi dealers in China are offering
hefty discounts of as much as 25 percent to persuade customers to buy,
Bloomberg News reported last
month, and the German
luxury automakers that typically enjoy profit margins of 16 percent to 18
percent will need to become accustomed to margins more in line with global
standards of 10 percent to 12 percent.
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