China forecasts slowing of auto market growth
Published: 13 Jul. 2015, 21:29
Amid an equities rout that has wiped out as much as $4 trillion in market value, the state-backed China Association of Automobile Manufacturers projected passenger-vehicle sales to grow about 6 percent this year, possibly less if the stock market doesn’t stabilize. In Europe, car deliveries are projected to climb 5 percent this year after rising for the first time in seven years in 2014.
For years, auto executives visiting China would cite the country’s large population, low ownership rates and rising incomes in justifying the billions of dollars spent to build factories. These days, they are asked about price wars, struggling dealers and falling sales, underlining the rising concerns about China as a global growth hub.
“It’s become a real headache for automakers,’’ said Klaus Paur, an independent auto analyst in London previously based in Shanghai. “There’s such an over-dependence on China for many carmakers, and they’re still banking a lot on China.’’
Automakers such as General Motors and Ford Motor are expanding more quickly in their home markets than in China this year, a contrast to when global automakers looked to the world’s largest car market to prop up falling demand a few years ago.
Volkswagen AG last year said it would invest more than 22 billion euros ($24.4 billion) in China by 2019 with its local partners. GM’s joint venture with SAIC Motor said in April it plans to spend 100 billion yuan ($16 billion) by 2020 to compete for market share in China.
Other automakers will soon have more manufacturing capacity. Hyundai Motor is building two more plants in China by next year, while Renault SA has a factory set to open in the first half of next year. Fiat SpA is set to start making Jeeps in China later this year.
“The massive investments from a few years ago will slow down, and everything that is going into capacity enhancement will have to slow down,” Paur said. “They’ll have to put their foot on the brakes.”
Volkswagen is closely monitoring the China market to ensure that its spending plan there is reasonable, the company said in an e-mailed response. Investments are planned on a five-year basis to keep flexibility, it said.
GM said that it remains committed to China and expects the auto industry to keep growing, albeit at a slowing rate. “The market is clearly under some pressure,” the company said.
Ford and Hyundai both said there are no changes to their China plans.
Foreign and local automakers introduced price cuts in China in recent months to spur auto demand but with little effect, as June retail auto sales fell for the first time over two years.
The situation was exacerbated by a slump in Chinese equities, which led consumers to stop buying cars as their stock market investments dwindled. Consumers were canceling purchases after putting down deposits for cars, said Cui Dongshu, secretary-general of the China Passenger Car Association, describing the stock market slump as a “meat grinder” for auto sales.
“If people get extra money, don’t invest in the stock market,’’ Dong Yang of the China Association of Automobile Manufacturers said in Beijing last week when he announced the cut in the market forecast. “It would be nicer if people used it to buy cars.’’
BY BLOOMBERG
with the Korea JoongAng Daily
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