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China Auto Market Will Continue to Drive Sales for Western Manufacturers in 2011

Companies / US Auto's Dec 23, 2010 - 06:09 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDon Miller writes: The world's largest carmakers, including Toyota Motor Corp. (NYSE ADR: TM), General Motors Co. (NYSE: GM) and Volkswagen AG, expect China's red-hot economy to keep auto sales rolling at a record pace in 2011, making it the third year in a row the Red Dragon will top the U.S. in car sales.

China's vehicle sales jumped 46% in 2009, dethroning the United States as the world's largest auto market and ending more than a century of American dominance that started with the Model T Ford.


The nation's sales of passenger cars, buses and trucks rose to 13.6 million in 2009, the fastest pace in at least 10 years, according to the China Association of Automobile Manufacturers. At the same time, U.S. sales tumbled 21% to 10.4 million, the lowest level since 1982, according to Autodata Corp.

China's vehicle sales have surged since 1999 as its gross domestic product (GDP) growth averaged more than 9% a year, helping U.S. automakers make up for slumping demand in the West. China's vehicle sales surged 30.45% in the first half of the year to 7.18 million units, compared to 5.6 million for the United States.

"China is becoming the center stage of development for the 21st century global auto industry," Bill Russo, a Beijing- based senior adviser at Booz & Co., told Bloomberg. "Economic growth has directly translated into growth in automobile sales."

Fatih Birol, chief economist for the International Energy Agency (IEA) says that today 700 out of every 1,000 people in the United States and 500 out of every 1,000 in Europe own cars. But in China, only 30 out of 1,000 people own cars. And Birol thinks that figure could jump to 240 out of every 1,000 by 2035.

The China's automobile market is expected to grow by 15% in 2011, and sales growth at GM is expected to match that pace, according to GM's China President Kevin Wale.

Volkwagen AG (PINK: VLKAY), Europe's biggest auto manufacturer expects its sales to grow 10-15%, but remain constrained by a shortage of capacity, according to Soh Weiming, the company's executive president for China.

"I would anticipate nothing less than that and we will grow together with the market," Soh told Bloomberg News in an interview at an auto conference in Guangzhou, China on Monday.

Toyota, the world's largest automaker, said it expects its China sales to rise 13% to 900,000 vehicles in 2011. And Nissan Motor Co. Ltd. (PINK: NSANY) projects its sales will rise 17% to 772,000 units.

Even though Beijing is set to withdraw heavy incentives this month that helped boost its auto sales by 34% to 16.4 million through November, car sales growth in China is expected to again surpass the United States in 2011.

Auto sales in China may hit a whopping 20 million in China in 2011, according to data compiled by Booz & Co.

Meanwhile, light-vehicle sales in the United States could reach as high as 12.8 million units, Ashvin Chotai, managing director of auto consultant Intelligence Asia Automotive, told Bloomberg.

Excluding trucks and buses, Chinese passenger-car vehicle sales reached 12.45 million through November this year.

Even though China has stretched its lead over the United States and other markets, the elimination of subsidies and capacity bottlenecks are slowing the pace of growth.

GM and its joint ventures increased vehicle sales in China by 33% over a year ago to 2.2 million vehicles in the first 11 months of this year, the company reported earlier this month. VW-owned brands sold 1.8 million vehicles in China through November, an increase of 38% from a year earlier.

A shortage of manufacturing capacity will constrain VW's ability to meet demand in the nation, Soh told Bloomberg. The Wolfsburg, Germany-based automaker has said it will spend $14 billion (10.6 billion euros) through 2015 to build two factories to supplement the nine it currently operates in China, boosting production to 3 million cars annually.

"The next 24 months will be tough for us as we have production constraints," Soh said. "VW's biggest challenge to growing sales is limited capacity in China."

Hyundai Motor Co. (PINK: HYMLF), which projects sales will grow just 2.9% in 2011 to 720,000 units, will also be limited by a lack of capacity, Noh Jae-man, president of the automaker's Chinese operations told Bloomberg.

Seoul-based Hyundai intends to build its third Chinese factory as it strives to boost Chinese capacity by 50% to 900,000 vehicles a year by 2011. Ford Motor Co. (NYSE: F) is spending $490 million on a third plant in China.

Source : http://moneymorning.com/2010/12/23/...

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