In China's Car Market, Sales Slowed and New Rules Hurt in 2011

In Other Top Trends, Government Pushed Electric Vehicles and Foreign Automakers Added Local Brands

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Despite China's transformation into the world's largest car market, its auto industry is still going through adolescence.

Dozens of automakers are struggling for market share, government regulators are sorting out their priorities and many people are buying cars for the first time.

Those are the sort of growing pains that took decades to be resolved in the United States and Europe.

With that in mind, here are Automotive News China's top-five automotive stories in 2011:

1. China's auto market hits the brakes

Light-vehicle sales rose only 5% in the first 11 months of 2011, compared with a 33% jump in the year-earlier period.

The market softened after the central government ended its scrappage program and raised the sales tax on small cars. Sales of microvans -- a price-sensitive segment -- went soft, and Chinese brands such as Chery and BYD struggled to fend off foreign rivals.

The luxury segment outperformed the rest of the industry, but even top-of -the-line brands such as BMW and Mercedes discounted some models.

Most analysts expect a moderate recovery in 2012, with industry sales rising 5% to 10%. But look for signs of panic if sales remain flat in the first quarter.

2. City of Beijing slaps tight limits on car sales

Bedeviled by traffic jams and the worst smog in the world, the municipality of Beijing slapped tight limits on car sales in January 2011.

Each month, only 20,000 new-car buyers were allowed to register their vehicles, a policy that cut sales by 70%.

For the most part, the auto industry shrugged off the draconian limits because they were confined to Beijing. But other traffic-clogged cities could follow suit. The central city of Guiyang imposed a similar measure in July, and two southern cities, Guangzhou and Shenzhen, may limit car purchases.

Earlier this year, Credit Suisse warned that car sales in China could fall as much as 17% if other cities restrict ownership. The prediction may seem extreme given environmentalists lack of clout, but public attitudes are starting to shift as Beijing's smog grows denser.

3. Two Chinese companies fail to rescue Saab

Two Chinese companies -- a major vehicle distributor and an obscure automaker -- hoped to gain Western technology and a well-known international brand by purchasing Saab Automobile AG.

Last May, car distributor Pang Da Automobile Trade Co. signed an agreement to take a financial stake in Saab and sell its cars in China. The following month, automaker Zhejiang Youngman Lotus Automobile joined the proposed partnership.

In theory, Saab's technology and brand equity would have given Youngman instant credibility. But the deal fell apart when General Motors, Saab's former owner, blocked it.

Saab may well be the last major international brand up for grabs for a Chinese automaker. Western automakers, finally recovering from the recession, no longer appear willing to sell struggling brands.

4. Beijing pushes foreign automakers to share technology for electric vehicles

In 2011, one of China's most influential government edicts was, strictly speaking, nothing more than an informal "suggestion."

If foreign automakers sought government approval to expand production in China, they would have to share key EV technology with their Chinese partners.

International automakers were initially reluctant to share key technologies such as batteries, electric motors and powertrain electronics. They then caved.

Nissan Motor Co., Daimler , Volkswagen , Honda Motor Co., General Motors, PSA Peugeot-Citroen, Toyota Motor Corp.and Hyundai Motor Co. all announced joint ventures to produce electric cars or plug-in hybrids.

To help things along, the central government offered generous sales incentives to EV buyers. In five Chinese cities, EV purchasers qualify for a government sales incentive of up to $7,300; plug-in buyers can receive up to $6,100.

The government aims to have 1 million electric cars and plug-ins on the road by 2015, according to the Ministry of Science. Despite Beijing's pressure tactics, that goal looks like a long shot.

5. Foreign automakers introduce entry-level brands

There was a time when foreign automakers didn't even try to compete in China's entry-level market, a segment dominated by domestic brands. Those days are over.

This year, international automakers rolled out new brands aimed at price-sensitive consumers in China's second- and third-tier cities. For example, General Motors introduced its Baojun sedan, Honda rolled out Everus and Nissan unveiled Venucia. All three brands feature models priced under $10,000.

Domestic Chinese automakers, which once prospered by selling obsolescent cars at low prices, are starting to feel the heat. Companies like Geely, BYD and Chery must upgrade their technology and product quality. Their progress -- or lack of it -- will be one of the top stories of 2012.

Automotive News China

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