Global carmakers converge on China as rare slowdown looms

Global carmakers converge on China as rare slowdown looms

Global carmakers converge on China for the Shanghai auto show this week, with the industry bracing for a sharp sales slowdown and potential price war as competition stiffens in the world's biggest car market.

Manufacturers have reaped a windfall as the fast-expanding Chinese middle class hits the road, but clouds loom as Volkswagen, Toyota, GM, and other top nameplates pitch their latest models starting this Wednesday at China's biggest auto showcase.

Passenger-vehicle sales have nearly quintupled over the past decade and logged another stellar performance in 2016, surging 14.9 percent to a record 24.38 million, according to the China Association of Automobile Manufacturers.

But volume was skewed upward in 2016 by a government purchase incentive. As China's decades-long economic boom loses lift, sales growth will essentially be flat this year and could even shrink in 2018 for the first time in memory, consultancy IHS Markit said last week.

In a boon for consumers, IHS Markit said there is already "a major price war descending on the market" as manufacturers and dealers slash prices to move growing stock.

"The threat now for international automakers is that if local players begin cutting prices ... there will be a rampant price war across the market as automakers compete to attract new car buyers," it said.

Such troubles must be kept in perspective: China is still El Dorado for carmakers.

Last year's sales set a 26th straight annual high-water mark, handily beating the record 17.55 million cars sold in the United States, which China zoomed past eight years ago to become the planet's top market.

But sales were boosted by the government's halving of a 10-percent purchase tax on small-engine cars in late 2015. That tax has been raised to 7.5 percent this year and will be restored to 10 percent in 2018, with an expected dampening effect on sales.

Death by suffocation

More broadly, analysts say China's automotive landscape is rapidly maturing as consumer tastes evolve, and success will depend on manufacturers' capabilities in meeting those tastes.

China now has a crowded field of mostly domestic carmakers, many of which won't survive, said Johan Karlberg, a Shanghai-based partner with global consultancy Roland Berger.

"There's just not room enough for that many players any more. Many of the smaller ones will simply die a slow, suffocating death," Karlberg said.

Major carmakers remain bullish, but are scrambling to introduce a slew of new models aimed at Chinese consumers during the Shanghai show, which IHS said has taken on "major importance" as the dynamics evolve.

Manufacturers are rushing in particular to capitalise on still fast-growing demand for sport-utility vehicles and "new energy" cars.

Chinese drivers have latched on to both domestic and foreign-made SUVs as leisure interests grow and rising incomes put a second family car in reach. SUV sales are expected to surpass sedans as early as this year.

Electric vehicle sales have been government-subsidised partly to help reduce China's notorious air pollution, and the Chinese market is now the world's biggest and growing quickly.

China market leader Volkswagen, along with giants GM, Ford and a host of electric-car upstarts, all have plans to ramp up their China offerings.

Ford will even try to sell its American-icon pickup trucks, while expanding its electric offerings.

"We think it's a huge opportunity for us to continue to build the Ford brand here in China and continue to grow our business in China," Ford CEO Mark Fields told Bloomberg News.

Analysts say other future drivers lie in China's seemingly never-ending stock of newly-minted middle-class consumers, particularly in populous and fast-growing lower-tier cities, plus the rapid growth in car-hailing and vehicle-sharing services.

"We still have a pretty good period of growth ahead in the Chinese market. It is THE strategic market for global carmakers," said Marc Mechai, an automotive analyst with Accenture in Paris.

"But now, it remains to be seen with which vehicles, and how."

 
 

Global carmakers converge on China as rare slowdown looms was posted in business of Geo TV - https://www.geo.tv on April 17, 2017 and was last updated on April 17, 2017. This news story is related to Business, Business News, Geo News, Latest Business News. Permanent link to the news story "Global carmakers converge on China as rare slowdown looms" is https://www.geo.tv/latest/138346-Global-carmakers-converge-on-China-as-rare-slowdown-looms.