China's Hot Car Market Cools Down

June 6, 2008

If we're lucky, the U.S. auto market will post no more than a 10 percent decline this year. From the peaks we saw early in the decade, the numbers will drop to barely 15 million, according to the latest forecasts, and some pessimists still think we could plunge down to the 14 million range.

No wonder automakers from around the world, from GM to VW to Toyota and Hyundai, are eyeing China as their saving grace. The world's most populous market is also the fastest-growing new car market and, according to more than a few forecasts, could become even larger than the U.S. by around 2020.

So, the latest numbers from behind the rice curtain must be getting industry leaders a little nervous. For the first four months of 2008, Chinese car sales rose by a seemingly impressive 17.8 percent. Makers would kill for those gains in developed markets like the U.S., Europe, or Japan. But until recently, the Chinese market could routinely be counted on for gains in the high double-digit range, even triple digits. And so, April's modest 10.8 percent gain is all the more disconcerting.

"Could the foretold global recession be hitting Chinese consumers, or is it just a lull before the summer driving season?" asks the China Car Times, which goes on to quote Li Chunbo, an auto analyst from Citic Securities Co Ltd.

"Slow sales growth in April is unusual," said Li, adding that, "The purchase desire could be possibly dampened because of people's lower income from the tamed stock market and real estate sector."

No one seems to anticipate a wholesale slowdown in China. There's simply too much momentum, barring a truly catastrophic problem with the country's booming economy or a sudden shortage of oil. But a continued slowdown seems increasingly likely.

Complicating matters, the Chinese market is also the world's most competitive. Virtually every Western, Japanese, and Korean nameplate is pushing to expand its presence there, as are the best of the domestic Chinese brands, like Chery and Brilliance. That's been driving down prices spectacularly, in some recent periods by as much as 25 percent a year. So it seems increasingly difficult for carmakers to count on China to make up the dollars they're losing in the U.S. and other struggling Western markets.

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