I wrote last July that the future of the auto finance sector was largely wrapped up in China. August car sale numbers in the Middle Kingdom — while supplemented by government stimulus (their government, not ours) — showed why China is the most important car-buying market in the world today.
According to Bloomberg:
China’s passenger-car sales surged a record 90% last month, as tax cuts and government subsidies spurred demand, bringing the nation closer to overtaking the U.S. as the world’s largest auto market.
Sales of cars, sport-utility vehicles and multipurpose vehicles, rose to 858,300, the China Association of Automobile Manufacturers said in a statement today.
Is this really such great news, though? This next forecast will take you back to 2005:
Full-year vehicle sales may rise 28%, based on a forecast made by Chen Bin, chief director of the industry coordination department at the National Development and Reform Commission, at a conference in Tianjin on Sept. 5.
He added that carmakers should “keep their heads” to prevent overcapacity as it was unclear whether growth was sustainable in the longer term.
In the first eight months, China’s vehicle sales rose 29% to 8.33 million. Passenger-car sales rose 37% to 6.22 million. Commercial-vehicle sales gained 11% to 2.1 million.
Ah, the joys of incentive-fueled rocketing car sales.
So there is a caveat to China’s story: China is the key to the future of the world’s auto industry, as long as China’s auto sector can “keep its head.” An important caveat, indeed.
How can we pick up the dealer relationships? Do you know anyone at BBVA that we might talk to?
你好吗!中国的汽车市场竞争是。。。 As to competition in the Chinese automotive market:
“Keep its head” or find its head?! Not only is every “global” producer in the market, but there are still dozens — not just a couple, three or four dozen — domestic players. In some ways it’s not yet a national market; if you travel across China, you can see the make of the local taxis change. Now China is a big place, the size of the continental US or a bit over twice as large as the (expanded) European Union. But as the network of expressways (and the central government’s rule of law) are extended, it is effectively shrinking and moving towards a single market.
Who will remain? So far it’s been a combination of firms with the best strategic position (a combination of costs and brand) and those with the deepest pockets (ties to a big city or provincial government).
The longer the government-subsidized segment persists, the greater the possibility of a bloodbath for the “commercial” producers, even if all the international players have been investing conservatively (which is not the case!).
Of course the international players are also allied with one or another local partner — those were the rules — and those partners are directly or indirectly tied to local government. We’ll see who is in the driver’s seat when the red ink starts to flow. But flow it will, even if the market continues to grow without a major hiccup from (say) an attempt to end the addiction to incentives.
Now as to how long, well, in Europe the auto industry had the block exemption and otherwise kept national markets, well, national; we still see that going on with Germany and Opel. But Europe has no pretense to being a single state under a strong central government. I think the transition in China will occur in the next five years, rather than the decades the transition has taken (is taking) in the EU.