China May Eat Our Lunch, But They're Going To Have Trouble Digesting It

April 22, 2010
byd f3dm 002

byd f3dm 002

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For months, we've been talking about the jaw-dropping growth of China's auto market. Now that the country's on a roll (literally), there's little chance of things slowing down, but according to a new report from J.D. Power and Associates, the road to world domination will be riddled with some serious potholes.

Last year, China's auto market swelled 45%. That was due in part to government-backed incentives to encourage the purchase of energy efficient vehicles like the BYD F3DM (at left). As those incentives scale back and/or phase out, the rate of expansion is expected to dip considerably, but even so, analysts expect to see a whopping 55% growth in China's auto market over the next five years. In real numbers, that translates to sales of 13.55 million passenger vehicles by 2015 -- up from 8.7 million today.

But there's more to the story than that. The numbers make China's ascendancy to the #1 market position seem smooth and effortless, but in fact, it's likely to be a very, very bumpy ride. J. D. Power identifies a number of problems facing China that could cause growth to stall -- problems that markets like the U.S. dealt with years ago.

The biggest problem facing China seems to be the huge number of automakers doing business within its borders. By 2015, there will be upwards of 90 brands on the market, with 300 domestically produced models and many, many more imported from outside the country. Competition will be fierce, profit margins will be slim, and many of those companies are doomed to fail -- but not, of course, before they beg Bejing for support.

In fact,the vast number of competing auto brands is likely one of the reasons that the Chinese government put the kabosh on Sichuan Tengzhong's purchase of HUMMER. Faced with daunting odds, the last thing China needed was a struggling gas-guzzler, transplanted to a country already dealing with massive environmental pollution and pushing consumers to go green.

Other problems plaguing the Chinese auto market include a lack of consolidation among brands, difficulty marketing to consumers outside major metro areas, and finding quality personnel to work in dealerships.

So at the end of the day, it's a mixed bag for Americans. The bad news? We're no longer the center of the automotive universe. The good news? We get to sit back and watch China go through puberty.

Read all about it in J.D. Power's press release below.

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J.D. Power and Associates Reports: Five-Year Outlook for Automotive Market in China Forecasts 55 Percent Growth, Numerous Challenges

J.D. Power and Associates Outlines Five-Year Forecast in China Automotive 2015: The Cost of Opportunity

BEIJING, April 22 /PRNewswire/ -- Sales of passenger vehicles in China (including passenger cars, SUVs and minivans) are expected to increase from 8.7 million units in 2009 to 13.55 million units in 2015—an increase of more than 55 percent, according to a special report titled China Automotive 2015: The Cost of Opportunity, released by J.D. Power and Associates today.

The report examines the future of China's automotive industry and the challenges that automakers face in one of the world's fastest-growing vehicle markets.

Larger automakers and long-established brands have recorded substantial profits in the past few years in China. This was especially true in 2009, when government stimulus and massive bank lending—the equivalent of one-third of China's gross domestic product—translated into soaring vehicle sales and record profits for many automakers. This kind of stimulus, however, cannot continue indefinitely.

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