The Auto Writer

The Red Hot Red Chinese Automotive Market May Be Cooling

Communist China has been flirting with capitalism over the past two decades, allowing her citizens to participate in consumerism, including the purchase of new cars. On the one hand China’s consumer quest has spawned a large and growing middle class of people who want modern amenities, but on the other hand China continues to repress, persecute, even execute people who disagree with totalitarianism.

Western and Asian companies are behind much of the growth in China, building factories across the country and catering to the proletariat. The automotive industry has benefited tremendously, providing millions of new vehicles to the masses. Indeed, in 2007 China surpassed Japan as the second largest market for new vehicles and may one day overtake the US market.

Eventually, the Chinese market will peak, forcing manufacturers to reconsider how they do business in China. No, there probably won’t be a mass exit from the country, but the strongest manufacturers will not only survive, but thrive.  Most definitely, competition is forcing down prices particularly as capacity increases.

Sales Continue To Rise At A Fevered Pitch

J.D. Power and Company, the global marketing services company, is predicting that the Chinese automotive market will increase in year over year sales for 2008, but at a slower rate than what they initially predicted. In 2007, 5.42 million vehicles were sold with another 5.95 million sales expected in 2008, down from the 6.2 million previously predicted.

“Car dealers in Shanghai, Beijing and Shenzhen reported lackluster demand for new vehicles,” said John Bonnell, director of J.D. Power Asia-Pacific Forecasting. “Ebbing consumer confidence, coupled with higher gas prices, is likely keeping many shoppers out of the showrooms.”

Regulated Gas Prices Rise By 17%

For the first six months of the year, automotive sales in China are up a whopping 18%, but a 17% hike in gas prices late in June is expected to temper growth for the remainder of 2008. As a planned society, China controls gas prices nationwide and, like the rest of the world, has been paying a premium price for petroleum.

“After the increase in the price of gas, look for Chinese buyers to become more discerning about the vehicles they buy,” said Bonnell. “Much like American consumers, Chinese buyers will look for models that offer adequate size and better mileage. The five best-selling models in China this year are all powered by engines smaller than 1.8 liters.”

Up until recently Chinese consumers have flocked to large cars and SUVs. That trend is expected to change as Chinese motorists deal with their own pain at the pump.

(Source: J.D. Power and Associates)