Mon, Apr 17, 2017 - Page 16 News List

Global automakers converge on China for Shanghai show as slowdown looms


Visitors on April 15 attend an auto show in Nanjing, China.

Photo: AFP

Global automakers converge on China for the Shanghai International Automobile Industry Exhibition this week, with the industry bracing for a sharp sales slowdown and potential price war as competition stiffens in the world’s biggest auto market.

Manufacturers have reaped a windfall as the fast-expanding Chinese middle class hits the road, but clouds loom as Volkswagen AG, Toyota Motor Corp, General Motors Co (GM) and other top nameplates pitch their latest models at China’s biggest auto showcase, which starts on Wednesday.

Passenger-vehicle sales have nearly quintupled over the past decade and logged another stellar performance last year, surging 14.9 percent to a record 24.38 million, according to the China Association of Automobile Manufacturers.

However, volume was skewed upward last year by a government purchase incentive. As China’s decades-long economic boom loses lift, sales growth will essentially be flat this year and could even shrink next year for the first time in memory, consultancy IHS Markit said last week.

In a boon for consumers, IHS Markit said there is already “a major price war descending on the market” as manufacturers and dealers slash prices to move growing stock.

“The threat now for international automakers is that if local players begin cutting prices ... there will be a rampant price war across the market as automakers compete to attract new car buyers,” it said.

Such troubles must be kept in perspective: China is still El Dorado for automakers.

Last year’s sales set a 26th consecutive annual high-water mark, easily beating the record 17.55 million autos sold in the US, which China zoomed past eight years ago to become the planet’s top market.

However, sales were boosted by the government’s halving of a 10 percent purchase tax on small-engine cars in late 2015. That tax has been raised to 7.5 percent this year and is to be restored to 10 percent next year, with an expected dampening effect on sales.

More broadly, analysts said China’s automotive landscape is rapidly maturing as consumer tastes evolve and success would depend on manufacturers’ capabilities in meeting those tastes.

China now has a crowded field of mostly domestic automakers, many of which will not survive, said Johan Karlberg, a Shanghai-based partner with global consultancy Roland Berger.

“There’s just not room enough for that many players any more. Many of the smaller ones will simply die a slow, suffocating death,” he said.

Major automakers remain bullish, but are scrambling to introduce a slew of new models aimed at Chinese consumers during the Shanghai show, which IHS said has taken on “major importance” as the dynamics evolve.

Manufacturers are rushing in particular to capitalize on still fast-growing demand for sport-utility vehicles (SUV) and “new energy” cars.

Chinese drivers have latched on to both domestic and foreign-made SUVs as leisure interests grow and rising incomes put a second family car in reach. SUV sales are expected to surpass sedans as early as this year.

Electric vehicle sales have been government subsidized partly to help reduce China’s notorious air pollution and the Chinese market is now the world’s biggest and growing quickly.

China market leader Volkswagen, along with giants GM, Ford and a host of electric-car upstarts, all have plans to ramp up their China offerings.

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