The world's top auto market is slowing down -- although the smog that blurs distant buildings in China's cities is a reminder that years of blockbuster auto sales have secured the country's first-place ranking for the long haul.
For Ford and Chrysler, which are still getting established, the slowing market means they largely missed out on a stretch of record growth, and, in some cases, profits.
Chrysler is leaning on a small business importing Jeeps, while its part owner Fiat is introducing its 500 minicar in China this year and won't have a locally built car to sell until next year. Ford's 2010 light-vehicle share was 3.4 percent.
"We could have gone faster and should have gone faster in China," said Joe Hinrichs, CEO of Ford China.
For General Motors, whose sales in China last year made up 28 percent of its worldwide volume, the slowdown might mean a chance to catch its breath. After having doubled its sales in two years, GM is planning to take five years to accomplish the feat again.
Chinese governments have deliberately slowed their country's auto market by cutting off incentives, twice increasing gas prices and limiting license plate registrations in congested Beijing.
After more than an eightfold increase in auto sales over the last decade, China has developed a true car culture.
Amid the buzz for last month's Shanghai auto show, ads for a single car papered entire subway stations in this city of 19 million people. Outside a luxury hotel, an employee nearly cried as she took photos of a red Ferrari. "Oh, it's beautiful!" she exclaimed.
Auto plants throughout China, with potted bamboo or fish tanks in break areas, are viewed as essential to the development of small cities of a million or more people.
After a decade of double-digit annual sales growth, excepting one year, light-vehicle sales in China topped 17 million last year. While that represented a 33% year-over-year annual increase, it was smaller than the 48% surge in 2009.
Still, China's growth is slowing.
Government actions held growth in the first quarter to about 8%, compared with a 20% increase in the recovering U.S. market, where sales haven't hit 17 million since 2001. Last year, U.S. sales were a below-average 11.6 million.
China's annual sales growth is expected to hover around 5% to 15% for the next several years, likely marking an end to the kind of year-over-year sales explosion automakers recently enjoyed. The more normal growth will still offer millions of additional buyers every year and will about double the overall market in the next decade.
"We are not talking about a recession," said Lorenzo Sistino, who runs Fiat's international operations.
China applies the brakes
As the global auto market struggled to recover from its recent recession, China thrived, partially because of the government's new-car subsidies.
This year, authorities want to cool the economy to prevent inflation. China has raised commercial lending rates four times in the past six months and increased gas prices three times last year and twice already this year. A variety of car-buying subsidies have ended, starting with incentives on light commercial vehicles and cars with small engines.
In addition, the government of the capital city of Beijing implemented a lottery system this year to limit new license plates to 20,000 a month, or about one-third the number of passenger cars registered in 2010, analysts from J.D. Power and Associates say.
A similar system is already in place in Shanghai, said Kevin Chen, who runs Cadillac in China. People bid each month for the amount they're willing to pay for a plate. The average bid had been 20,000 to 30,000 yuan -- roughly $3,000 to $5,000 -- but this month hit a record high of nearly $7,300.
The highest offers win, and the losers must try again. Until bidders get a plate, they can't drive the new cars they've bought. Some get plates from other provinces, but they risk getting pulled over if they drive in the many areas designated Shanghai-only plates.
The Chinese government's ability and willingness to slow the market at will -- and speed it up -- adds a new dimension to automakers' business planning.
"The market's going to go up and down with government incentives," GM China President Kevin Wale said. "It makes it a little more difficult, but we always try to stay focused on trend growth."
GM: A chance for a breather?
For GM, the slowdown has yet to put a halt to the scramble to supply consumers' demand for new vehicles. The automaker and its joint ventures lead the Chinese light-vehicle market, which last year meant a 13.1 percent share. This year, GM rushed to fill a 10% first-quarter increase in demand for its vehicles, compared with the 8% gain in the overall Chinese market.
GM aims to double its China sales to around 5 million by 2015, in part by adding a stripped-down Baojun brand under Chevrolet to compete with Chinese brands. The automaker can already assemble 2.9 million vehicles in China annually and is building plants that will make another 800,000.
But less demand may be ahead.
GM's Wuling joint-venture brand captured 39% of the compact commercial vehicle segment last year. But J.D. Power and Associates forecasts a decline in demand for minibuses -- locally called a word that translates to "bread van" because of their shape -- which are popular among small businesses.
So far, GM's performance hasn't suffered. Still, if the Chinese market stays slow, GM might catch its breath or increase its exports to other developing countries.
Ford's China plan
Ford, on the other hand, focused on its North American turnaround before pouring its efforts into the exploding Chinese market. Ford and its joint ventures therefore ended last year with 3.4 percent of the Chinese market, or about 580,000 sales. The Dearborn automaker is seeking to expand in China by adding 15 products and doubling its work force by 2015.
Despite the slowing market, the automaker says it can grow share since first-time buyers continue to account for three-fourths of purchases. And the handful of second-time buyers don't show much loyalty: Brands rarely keep more than 60% of their customers.
"You're still competing on an even playing field for new buyers," said Joe Hinrichs, CEO of Ford China. "It's not like in a mature market where you're trying to steal market share."
Despite its position outside China's top 10, Ford's growth last year outpaced the industry. Ford only offered five passenger vehicles, but increased its sales 40%, compared with China's overall 33 perecent, and grew 19% in the first quarter of this year compared with China's 8 percent increase.
Chinese buyers are especially attracted to the next new thing, so Ford is also counting on luring them through its upcoming rush of new product, most of it in new segments that should help Ford grow share, Hinrichs said.
The automaker is competing with 50-some other automakers and about 85 brands. Still, "we have 340 dealers, we've been here for well over 10 years, and we're well-known internationally. That puts us in a little different position than others," Hinrichs said.
Chrysler and Fiat regroup
When Chrysler acquired Jeep in 1987, it took over the first joint-venture plant in China, Beijing Jeep, which opened in 1983. After Daimler and Chrysler united in 1998, Mercedes-Benz also used that plant. Chrysler has since ceased production there and today lacks any Chinese plant.
Chrysler instead leans on imported Jeeps, which it's counting on for nearly half of the 500,000 international sales it hopes to have by 2014.
Last year, Chrysler Group sold 23,428 vehicles in China, worth about 0.1 percent of the market, off a 22 percent increase that lagged the industry. Through March, 2011 sales numbered 8,500, outpacing the market with 67 percent growth.
Chrysler's part owner, Fiat, plans to sell its imported Fiat 500 flagship in September, intended only to position the brand, and next year plans to open a plant to build its first car with its Chinese partner, Guangzhou Automobile. Fiat has been trying to gain footing in China after failed partnerships with Nanjing Auto and Chery Automobile.
Fiat will make a profit if its first car with Guangzhou hits its annual sales target of 140,000 units, international boss Sistino said.
J.D. Power analyst Tim Dunne said he thinks automakers like Ford and Fiat still have time to catch up in the Chinese market, since it's still growing.
"If you have the right product, there's plenty to go around," he said.
Using the slowdown wisely
Still, the slowdown is causing automakers to change some strategies in China.
If the country's growth keeps slowing, especially if the effects of March's Japanese earthquake and tsunami put a crimp on global production, automakers say they may cut back on overtime and weekend production. They could also use Chinese production capacity to ramp up exports to other hot developing markets, said analyst Namrita Chow of IHS Automotive.
In addition, a more normal growth rate will allow the government and automakers to ramp up infrastructure and development to better keep up with growth. For instance, the Chinese government has said it wants 5 million electric vehicles on its roads by the end of this decade. But owners often park their cars in underground garages that need more electric outlets to charge cars.
"We would like to see wholesome growth coupled with infrastructure," said Kimiyasu Nakamura, president of Nissan's joint venture with China's Dongfeng Motor. "We would like to support these positive efforts and also fuel-economy regulations. ... Six to 10 percent may be the healthy rate of growth."
Contact Chrissie Thompson: 313-222-8784 or firstname.lastname@example.org
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