China's Dying Car Market


The theory about the success of large global car manufacturers has been that as they lose sales ground in Europe, China should more than make up for the drop. The U.S. market has been strong enough to contribute to overall worldwide sales, but the People's Republic, the largest car market in the world, is supposed to be the engine of successful expansion in the future. However, China's car market growth has almost stopped, and major global auto companies have lost the foundations of their salvation.

New information from the China Association of Automobile Manufacturers show that total sales of cars and light trucks in 2012 rose only 4.3%. The same organization forecast a 7% increase in 2013.

Unfortunately, the largest car manufacturers have two important problems with the market in the People's Republic.

The first of these is that at least a dozen manufacturers have gambled some large portion of their overall success on success in China. General Motors Co. (NYSE: GM) and Volkswagen already vie for the top spot in Chinese sales from month to month. That will make it hard for firms such as Toyota Motor Corp. (NYSE: TM), Ford Motor Co. (NYSE: F), Honda Motor Co. Ltd. (NYSE: HMC), Hyundai, BMW and Mercedes to improve unit sales. Local companies also want to improve sales. With the overall China unit sales stalled, the chances of rising revenue and profits for the firms in this second tier behind VW and GM become a large and growing roadblock.

The wild card in the Chinese car industry is pollution. In Guangzhou, the nation's third largest city, lotteries have been created by the government to cut down on auto traffic. This is certain to undermine sales. The precedent could be matched in Beijing and Shanghai, which have among the most polluted air of any huge metro areas in the world.

European cars sales have fallen in double digits this year because of the recession there. American car and light truck sales moved higher by 13%, and that trend is expected to continue. The United States may be the second largest market in the world, but it is not large enough to offset trouble in China and Europe.

The China auto sales goldmine does not exist.

Filed under: 24/7 Wall St. Wire, Autos, China Tagged: F, featured, GM, HMC, TM