China Gains Influence in World Auto Market
2009/04/10 | By Michelle HsuChina replaced the United States as the world's largest auto market in January, and its auto sales are expected to continue growing by 5-8% in 2009 thanks largely to a government auto-industry stimulus package announced in the first month of the year and the "Auto Go-Countryside" policy unveiled in March.
The incentives offered by these programs include a cut in the sales tax on cars with engine displacements of 1600cc from 10% to 5%, and a subsidy of up to 20,000 renminbi (RMB) for the purchase of light vans or small passenger cars with displacements of 1300cc or less. The Beijing government has set aside 5 billion RMB for the subsidy alone, hoping to induce at least one million drivers to buy new cars this year. (A survey shows that in the countryside, computers and cars are the top two preferred purchases for people once they can afford it.)
According to news reports, the market-boosting measures had an immediate effect and the inventories of auto manufacturers dropped to a 13-month low in January. Statistics compiled by the China Association of Automobile Manufacturers (CAAM) show that China produced 2.76 million passenger cars in the first two months, down 18.57% from the same period of last year. Sales for the two months dropped 14.84% from a year earlier to 3.09 million units.
All of the market-boosting measures favor primarily Chinese brands, especially those with engines of 1600cc or less. According to the CAAM, sales of Chinese brands increased in February to make up 31% of total sales, the top five brands being the F3 QQ, Xiali, Geely Free Cruiser, and FRV.
The Chinese government hopes that in addition to the short-term goal of increasing sales, its stimulus package will result in an overall upgrading of the auto industry by helping to build up a healthy industrial structure, promote domestic brands, develop new technology, and strengthen fuel efficiency.
After growing at a double-digit rate for years, China's auto sales rose by only 6.7% in 2008 (still a lot better than most, since most markets suffered a contraction because of the financial crisis), to reach 9.38 million units.
China's auto industry is gradually forming into an oligopoly, with large manufacturers continuing to expand while their smaller rivals gradually fade away. It is government policy, in fact, to encourage consolidation as a means of enhancing competitiveness and brand awareness in the international market. This ploy is succeeding; no Chinese company turned out more than two million automobiles last year, and only three-FAW, SAIC, and DFM-exceeded one million units.
Fourteen groups now dominate China's domestic auto market, together accounting for more than 90% of total sales. The government wants to reduce the number of producers to 10 or fewer, with two or three having an annual production of more than two million units and another three or four reaching the one-million mark.
To boost their overseas markets, Chinese automakers are becoming increasingly active in introducing their new models at international auto shows. At the Detroit spring show, for example, Nissan, Mitsubishi, and several other Asian brands were absent because of the sluggishness in the North American market, but two new exhibitors from China were there: Brilliance Auto and BYD Auto.
Brilliance introduced four new models at the show, claiming that they combined the features of BMW and Toyota. BYD, which received a strong boost from Warren Buffet's open recommendation of it as one of China's most promising companies, impressed visitors in Detroit with an electric car powered by advanced Li-Fe batteries.
Chinese automakers earlier established relationships with foreign car companies in order to procure their technological support. Today many of the Chinese companies are in better financial condition than their foreign partners, and some are even in a position to lend help to their distressed counterparts. SAIC Motor, for example, is thinking about acquiring a major stake in its joint ventures with General Motors.
One of those ventures, Shanghai GM, sold 458,000 units last year, contributing considerable profit to its parent company. A sale by GM of its stake in Shanghai GM and other Shanghai-based subsidiaries (in the fields of auto rental, financing, insurance, etc.) would represent a divesture of most of its presence in the rewarding Chinese market, which GM has been developing for more than a decade.
Three European subsidiaries of American automakers-Volvo, SAAB, and Opel-are looking for new ownership. Geely Automobile Holdings of China is said to be interested in acquiring Ford's stake in one of them, Sweden's Volvo.
But not all Chinese automakers are eager to help out their foreign partners. SAIC acquired a 49% stake in Ssangyong Motor of South Korea for US$500 million four years ago, for example; today Ssangyong has encountered serious financial problems and is on the brink of bankruptcy, but SAIC is reportedly making no move to provide financial support.
For Chinese automakers that want to play a bigger role in the global market, technology, not capital, is the greatest need. The acquisition of foreign automakers like Volvo would provide short-cut access to foreign technology and to widely recognized standards of auto safety. Industry insiders caution, however, that such acquisitions would present an additional challenge for both the acquirer and the acquired companies: the culture gap.