Automakers' Next Big Worry: A Sales Slowdown in China

Automakers' Next Big Worry: A Sales Slowdown in China The major players in the auto industry have had it rough in the past few years, with the massive sales declines caused by the recession, and more recently, the body blow to their manufacturing and parts supply chains from the disaster in Japan. But the next challenge they face is already looming on the horizon: A slowdown in Chinese car sales.

Auto and light truck sales in China were up only 6.5% in March, well below the double-digit increases of recent years. And it's not a nation any automaker can ignore: China passed the U.S. as the No.1 vehicle market in the world two years ago.

When the recession hit, it cut auto sales in the U.S. from 16 million in 2005 to only 10 million in 2009. Other major car markets suffered similar drops -- with the exception of China.

Now, global auto manufacturers face the disruptions of the Japanese earthquake and tsunami, which has led to the shuttering of some of the nation's car plants, and a reduction of the exports of car parts essential to manufacturing in other regions such as the U.S. and Europe.

But the longer term financial fate of U.S. auto manufacturers rests to a large extent on China. GM (GM) is the market sales leader in the People's Republic, and its production there is well ahead of most other manufacturers, except Volkswagen (VLKAY).

China's drop in car sales growth could have been triggered by several factors. The first is that tax breaks for fuel-efficient cars ended at the beginning of 2011. Another is that there's some evidence that the savings rate is up again in China. The middle class in the People's Republic has only existed for a few decades and its evolution is not complete.

But the most ominous possible cause for the recent change in car buying habits is that inflation has caused prices of commodities-based products like food and clothing to soar, which is taking a bite out of Chinese consumers' discretionary income.

GM isn't the only car company which will be hurt by a deceleration of sales growth in China. Ford is anxious to be a significant force in the Chinese market, as are most other major manufacturers, particularly the Japanese. Toyota (TM), Honda (HMC), and Nissan (NSANY) have seen sales begin to slip in their home market of Japan, and the U.S. market is already highly competitive because of the presence of European and Korean firms, as well as the resurrected GM and Chrysler.

Automakers and their investors consider a rebound of U.S. sales to be critical to their future prospects. But it is slowing sales growth in China that should be their real concern.



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134 Comments

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shiloh1388

Oh yes, yum, yum, yum. In the past thirty years GM management has been the most patriotic, strategically thinking, America first corporation in the United States. Selling GM cars to China was just so smart, especially since the Chinese have no roads to drive them. And now that GM has their factories in China, China has always been so respectful of others intellectual property and innovations. Ofcourse I have just engaged in the most ludicrous of sarcasm. The Chinese have a huge population and relatively few natural resources. The only thing they have done for a sustainable planet is to impose a one child per couple regulation. Hillary Mao Clinton was just so sad, since she also has only one child- Chelsea. Grow up and smell the Sh-T. What dufus drugged up Bill and Hillary Clinton???? The same ones that sold us an unsafe, unfit, immoral, and unhealthy John Kennedy??? What satellite radio stations are the Russians plugging these days???? How is Youth for Hitler doing in America??? And the Pope Pedophile Teenagers for Sexual Revolution??? What new ads will we see on the media from crime families laundered for goodie, goodie, not so goodness??? Wow.

April 14 2011 at 10:15 AM Report abuse +1 rate up rate down Reply
frank1946

Price of car has doubled in 5 yrs., household income has gone down by 8 %

Not a future in this business ?

Where is Indian car TATO NANO ? Sells for $ 3,000 so I want one !

April 14 2011 at 5:42 AM Report abuse +1 rate up rate down Reply
acpward69

Cars are overated, Do not think Henry Ford would be happy with seeing how this turned out. Your judged by your car, LOL

April 14 2011 at 3:42 AM Report abuse rate up rate down Reply
ajschrod

Every sensible person knows that the going auto-industry union pay and benefits are 20% higher than common-sense rates, but that is in the process of changing. Right now it's a two (or more) tiered system that will eventually bring UAWs "total" compensation down closer to what the Japs are paying their American workers. It will take a few years, but remember that retirement pay for Honda and Toyota will start to become a factor also.

April 14 2011 at 2:08 AM Report abuse rate up rate down Reply
rskillsta

Automakers should be worried about China putting them out of business by becoming the world's biggest automaker. Despite trying to look Western, China is still a hardcore Communist country with the same world domination goals it's had since the Korean War. China has cleverly played into America's own capitalist greed to overtake it. With a country as overpopulated as China, grabbing the world's jobs and resources would seem to be its only strategy to survive, like the aliens taking over Earth sci-fi movies.

April 13 2011 at 11:11 PM Report abuse +2 rate up rate down Reply
2 replies to rskillsta's comment
strayleo

China did nothing, but sit there and let the republican party sell the american dream to them for the last thirty years. Reagan the great republican turncoat,and his corporate buddies(A MERCHANT HAS NO COUNTRY) sold the american people out for quick financial gain, their attitude is screw the american future, Money in the hand now is what matters . For a party that want less gov't control, Reagan decided what type of jobs americans will have and sold our manufacturing base to a communist party, while we payed taxes to help them do it.

April 14 2011 at 7:00 AM Report abuse +3 rate up rate down Reply
shiloh1388

Not a bad comment. You need to add the Russians to the list of not so friendly to the US. We can't buy friends. I would stop all "humanitarian aid" to all foreign countries. It is a cruel joke. The rich in Haiti AND THE RED CROSS, just get richer, and richer. ETC. I would then stop international flights into HOtel America, where you can check in and basically stay as long as you lay low and stick with your network. That chapter of the game is over. Poor rich boyz and gerls coming from Country Awful X, to the United States to attend the FOR PROFIT SICK AND GREEDY BUSINESS SCHOOL, OR MECHANICAL ENGINEERING AT PODUNK STATE TECHNO BROWNSTONE UNIVERISTY IN MISSISS-A-IGAN-FORNICATE-IA. PIGS OF GREED REAPING WHAT THEY SOW. STOP.

April 14 2011 at 10:32 AM Report abuse +1 rate up rate down Reply
Jean

When will our American companies realize that American consumers are their best customers? American companies have built up chinese and indian economies to the detriment of our own. It's time American companies realize that American consumers want quality products made in America. They want to pay slave wages overseas and they expect the workers there to buy American cars, they should be able to see that it's not happening.

April 13 2011 at 10:22 PM Report abuse +3 rate up rate down Reply
shiloh1388

For the leaders of China to allow the personal car phenomenon, similar to America of the 50s is rediculous. The population density of China is too great.No room for roads. The environmental risks are too great. High speed rail is much more realistic. Again, GM looks dumb in China. Just like Hillary and Bill shipping off Intel to China during their "Royal Arkansas Reign" in the White OUT House. Should we all go watch the movie DUMB, DUMBER, and DUMBEST????

April 13 2011 at 12:55 PM Report abuse -1 rate up rate down Reply
1 reply to shiloh1388's comment
richard

GM looks dumb in China? I think otherwise, GM set up shop there years before most other automakers, and now they are reaping the benefits--the largest market share and big profits.

April 14 2011 at 9:42 AM Report abuse -1 rate up rate down Reply
gneidh6906

The Chevy Volt and other electrics are only minor improvements in energy savings that actually use more energy by the time the batteries and such are produced. Laws of Physics say you can't do work without energy and our processes are so energy wasteful that it is ridiculous. In order to fuel the Volt, you need to get coal or oil to the power plant, heat the water for the turbnes, tranmit the electricity to the charging station and then every 40 miles you have to recharge the batteries on the car. Every step along the way uses energy (fossil fuels) and has inherent losses. On top of that there will need to be more power plants and there will be grid problems that cause more inefficencies, and so on. The Volt is a great money maker for the fat cats, but not for the US citizens. It is not even cleaner because that battery charge has to come from burning fossil fuels. The Volt also cost less that 20,000 to make and they are marking it up another 20,000, so they get a profit of 20,000 plus and then we have to pay 7500 from the tax fund. Oh yee of little thought! A real bargain! NOT!

April 13 2011 at 10:19 AM Report abuse rate up rate down Reply
1 reply to gneidh6906's comment
shiloh1388

I agree with your economic analysis. GM, Chrysler, and Ford all need to survive and thrive for American competitiveness. I always am supposed to forget that since we were "The Chryslers" Ford motor company and possibly GM and their thousands and thousands of 'middle-managers' hired assassins on the road to try to kill me as a teen-aged and early 20s driver. And many black people voted for Nixon, and some of their criminal ilk also tried. Criminals are usually stupid. One standard strategy for obstruction of Justice is to "Keep the Victim Busy", so even when the victim and his or her "Family" figure it out, through stonewalling, playing stupid, etc. the victim never scores the touchdown to bring the Truth out. The Catholic Church University, Roman Empire SATAN made the next attempt in Wash. DC when I was twenty-seven years old. Whatever. The FBI figures it's so hot, they might lose their 120K a year jobs. GEE Gosh honey. Boo Hoo.

April 13 2011 at 11:48 AM Report abuse rate up rate down Reply
inasctg56

veasystreet: Haven't seen the gop pass one piece of legislation that is for american workers. And it looks like gop followers that comment on here can't either. They always resort to name calling and one liners when progressives lists all the things the democrats have done.

April 13 2011 at 10:15 AM Report abuse +2 rate up rate down Reply
2 replies to inasctg56's comment
strayleo

Veassy, take a look at nafta some ime, it would make sense to know about it, but thats righth your a republican the truth don't matter only the art of the spin. Nafta came from the reagan bush years, and signed by president bush with the leaders of canada and mexico. It was signed by clinton after it was p[assed in a republic controlled congress. You know how republican deal, they take hostages and ask for ramsom to pass something.

April 14 2011 at 7:11 AM Report abuse rate up rate down Reply
strayleo

Veassy, take a look at nafta some ime, it would make sense to know about it, but thats righth your a republican the truth don't matter only the art of the spin. Nafta came from the reagan bush years, and signed by president bush with the leaders of canada and mexico. It was signed by clinton after it was p[assed in a republic controlled congress. You know how republican deal, they take hostages and ask for ramsom to pass something.

April 14 2011 at 7:11 AM Report abuse +1 rate up rate down Reply
Jean

Good, maybe American companies will consider the cost when they continue to ship jobs overseas for cheap labor. It's especially disgusting that American companies see nothing wrong with supporting communist china. If we are so concerned about supporting freedom and liberty around the world, why do we continue to build communist China's economy?

April 13 2011 at 9:43 AM Report abuse +5 rate up rate down Reply
1 reply to Jean's comment
richard

What`s wrong with General Motors making money in China? Chinese companies make money over here! Japanese companies make money in China! American companies supporting China? American consumers are the ones supporting China, if you didn`t already notice. American companies are in business to make money, and if they can make it in China, go for it.

April 14 2011 at 9:12 AM Report abuse rate up rate down Reply