China's Car Market Is Headed for Speed Bumps

Last Year, Many Automakers Reported Record Sales, but a Reduction in Government Incentives Will Likely Cool Sales in 2010

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Ford sold 47,358 Ford Fiesta cars in China in 2009, after the model was launched there last March
Ford sold 47,358 Ford Fiesta cars in China in 2009, after the model was launched there last March

HONG KONG (AdAgeChina.com) -- Multinational car makers enjoyed soaring 46% growth in sales in China in 2009, helping them weather a slowdown in the U.S. and other markets, but this year's double digit increase in sales is expected to be closer to 10%.

"The automotive market went beyond everybody's expectations," said Winfried Vahland, Volkswagen Group's president-CEO, China.

Unfortunately, say Chinese car experts, auto marketers will hit a few speed bumps in 2010, due to a reduction in tax breaks for new car buyers in China.

More than 13.5 million vehicles were sold there last year, a 46% year-on-year increase that made China the world's largest car market for the first time. As late as September 2009, auto industry experts predicted sales would reach just 12.6 million units in China last year.

Instead, China surpassed the U.S., where 10.43 million cars were sold last year, 2.8 million fewer than in 2008, in total units sold. The U.S. has held on to the No. 1 spot by revenue. In China, the average car costs $19,000 after tax, compared to $30,000 for a new American car.

Sales of passenger cars in China jumped 52.9% to 10.3 million units in 2009. LIn December 2009, car sales surged 88.7% to 1.1 million units, topping the one million mark for monthly sales for the third time last year.

Tax breaks helped sales last year
China didn't just appear on the car industry's radar in 2009. Annual sales growth has averaged 16.7% over the past 15 years, according to China Association of Automobile Manufacturers.

But sales heated up last year due to the government's stimulus package, which halved the 10% tax on small cars and offered subsidies for rural car buyers, decisions that sent Chinese rushing into dealer showrooms all over the country.

This year, however, the tax on small vehicles has risen to 7.5% from 5% in 2009.

"The market will grow by less than the average annual rate. Many people in the industry, including the industry association, expect to see 10% growth this year," said Yang Jian, editor of Automotive News China. "I think that prediction is reasonable."

Major auto companies agree a slowdown is inevitable.

Mr. Vahland expects "a growth rate of 10 to 15% for the total automotive market in China."

For General Motors Corp. and its joint ventures in China, sales there increased 66.9% year-on-year in 2009 to a record high of 1.83 million units.

"Despite the sales records in 2009, it looks as if 2010 will be even stronger. The industry outlook is strong and we expect more growth, albeit at a somewhat slower pace," said Kevin Wale, president and managing director of GM's operation in China.

Ford Motor Co.'s Nigel Harris believes China's car market will grow around 8% in 2010. "Our goal, similar to what it was in 2009, would again be to grow at a higher rate than the industry," he told Ad Age China.

In 2009, Ford's sales increased 44%.

Ad spending on cars is expected to remain strong in 2009, said Chris Reitermann, president of Ogilvy & Mather, Shanghai. "Auto continues to be quite competitive, companies are spending more and there is a lot of activity in retail, digital and non-traditional media."

Record sales for GM and VW last in 2009
Last year's government incentives for car buyers, however, helped China -- and many car manufacturers -- achieve record sales.

Sales of Shanghai GM rose 63.3% to 727,620 units last year, including 447,011 Buick-branded autos and 332,774 Chevrolet-badged cars. Shanghai GM, a joint venture between GM and SAIC Motor Corp., China's biggest automaker, also produces Cadillac cars in China.

VW also had a record year in Greater China. The German company sold 1.4 million vehicles in mainland China and Hong Kong, up 36.7% from 2008, when it sold 1.02 million cars.

Models like the Superb, which VW launched in China last year, helped its Skoda division sell 122,556 cars
Models like the Superb, which VW launched in China last year, helped its Skoda division sell 122,556 cars
Sales of the Volkswagen brand reached 1,117,909 units, including 22,168 imported vehicles, up 32.4% from sales of 844,491 in 2008.

Audi delivered 158,941 vehicles to customers (2008: 119,598, up 32.9%) including 16,574 imported units. Skoda sold 122,556 cars (2008: 59,284, up 106.7%), Bentley sold 484 cars, and Lamborghini sold 118 cars in 2009.

Ford sold 440,619 vehicles in China last year, a 44% from the 306,306 units sold in 2008. Nearly one-third of those sales (134,336 units) were for Ford's popular Focus sedan model. The company also sold 47,358 Ford Fiesta cars, a model that launched in China in March 2009.

Ford's joint venture with Chongqing Changan Auto Co. and Mazda Motor, which produces models like the Ford Mondeo, Volvo S40 and S80 sold 315,791 units in 2009, up 55%.

Sales of Toyota Motor Corp. rose 21% to 709,000 units last year in China, up from 585,000 units sold in 2008. Toyota's top models in China are the Corolla and Camry sedans and RAV4 and Highlander sport-utility vehicles.

Despite fewer incentives, high growth rates may not be a thing of the best, said Bryce Whitwam, general manager of Wunderman, Shanghai, which handles below-the-line marketing for Ford cars in China. "We're not going to see much of a change from last year and I expect car sales to have another record year. There's nothing stopping the momentum from 2009."


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