Thomas White Global Investing
China
China Stamp
May 8, 2009
A Postcard from Asia Pacific
China: Zooming Ahead in the Car Market

Shanghai Auto Show

Global automakers believe the future is China. With the Chinese government spending billions on upgrading its highways and roads, the Shanghai Auto Show witnessed several premieres, such as the Audi 2010 Q7.

The mood at the Shanghai Auto Show in April was strangely optimistic. Extraordinary, considering the state of the global automotive industry, with giants like General Motors and Chrysler struggling to survive this recession. But given the fact that China overtook the U.S. as the world’s largest car market at the beginning of this year, there is room for cheer in the Middle Kingdom.

It was the first time ever that China surpassed the U.S., which saw car sales plummet 40% to 656,881 units during January, a 40-year low. Contrast that with China, where buyers, increasingly enthused by government incentives, boosted sales to 735,000 units even in these recessionary times.

It is a winning streak that has continued. Total automobile sales in China reached 1.11 million in March, a rise of 5% over a year earlier, easily surpassing the U.S. for the third consecutive month.

These figures have been warmly welcomed by a beleaguered global auto industry, which has sputtered to a halt, hit by rising gasoline prices last year, then plunging consumer demand, and difficult auto unions. Even though car sales slowed to single-digit growth last year, China is the new beacon of hope now.

The result is that enormous expectations are being placed on China. The government has so far acted proactively – promising farmers subsidies of up to Yuan 5,000 ($732) for each ‘green’ car they buy. There have been tax cuts and rebates on small cars. Chinese carmakers such as Geely and Chery have benefited – pushing their cheaper cars to an eager domestic market.

Even GM, which is bogged in misery in the U.S. and closing domestic production plants, is considering opening another factory in China. The struggling behemoth hopes to sell a staggering two million vehicles in China by 2014. As well, luxury carmakers such as BMW and Daimler are banking on the Chinese government’s economic stimulus package to further hike sales.

At the Shanghai Auto Show, once a neglected on-the-fringe show dwarfed by the likes of the Detroit Auto Show, an unprecedented 13 new models were released. Two years ago, the show saw just two global debuts. But this year in China, Porsche rolled out its new luxury sedan, the 2010 Panamera– the first time that the German manufacturer has announced its entry into a new market segment outside Europe or North America. It is an action that affirms the faith and trust that vehicle manufacturers are showing in China. The new behemoth of the auto industry has risen.

As Ulrich Walker, the chief of Daimler Northeast Asia told Reuters, “We are at the moment on the lucky side in this part of the world.” Going by that mantra, China is the luckiest place to be.

 

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