Earlier this month, General Motors declared that one of its joint ventures had achieved a major milestone. The joint venture, according to GM, had become the first passenger-car manufacturer to achieve annual sales of 1 million vehicles in the world’s largest automotive market.
The joint venture is Shanghai GM. The world’s largest auto market: China.
After a decade of consistent year-over-year growth, China seized the No. 1 spot from the United States in 2009, as the nation’s vehicle sales reached 13.6 million units, according to the China Association of Automobile Manufacturers.
Meanwhile, vehicle sales in the United States, according to WardsAuto.com, plummeted to 10.6 million units in 2009-the lowest total since 1982.
No automaker outside China has benefited more from China’s turbocharged auto market than GM, which outsells all overseas competitors through its two joint ventures there. But make no mistake: Every major automaker is angling for a slice of the pie in China.
“There isn’t a single automotive company or major supplier that we talk to that isn’t putting a lot of attention on China,” says Craig Giffi, vice chairman and U.S. automotive practice leader for Deloitte LLP. “I can’t tell you who for sure is going to come out on top, but I can tell you that they’re all upping their game” [in the Chinese market].
A strong December will push U.S. vehicle sales to nearly 11.6 million units in 2010, J.D. Power and Associates estimated in a mid-December report.
An article in the China Automotive Review projected that vehicle sales in China could reach 18 million units this year.
While Deloitte, in its 2011 auto industry outlook, notes that “the trend of modest growth will likely continue” in the United States, the business advisory firm asserts that the “real growth engine” for automakers will be emerging markets such as China, India, Brazil and Russia.
In particular, “the Chinese market is going to be very interesting because the growth is so explosive,” Giffi says.
“I think we’re going to see more aggressive strategies from all the global players as well as the Chinese players to capture a piece of the market and to be left standing, if you will, when all is said and done,” Giffi says.
Opportunities and challenges
Giffi points out that the Chinese auto market is ripe with opportunities-and fraught with challenges.
While the Chinese market, according to one projection cited in the Chinese Automotive Review, could reach 20 million vehicles in 2011, the competition is fierce. J.D. Power estimates that by 2015 there will be more than 90 automotive brands competing in China’s passenger-vehicle market-more than twice the number of brands in the U.S. auto market.
Another challenge that could be particularly daunting for the U.S.-based automakers: J.D. Power predicts that by 2015 nearly 60% of the passenger vehicles sold in China will be lower-margin subcompact and compact cars. By contrast, J.D. Power predicts that just 22% of the vehicles sold in the United States in 2015 will be in the subcompact and compact categories.
“China’s rapid growth makes the automotive market highly attractive and almost irresistible to any automaker,” says John Humphrey, senior vice president of global automotive operations for J.D. Power and Associates. “However, for many brands, achieving their profit aspirations in China in the coming years will be far more challenging.”
Shorter-term, there are concerns that China’s auto market could be in for a slowdown in 2011, due to a number of factors. Inflation is expected to rise; tax breaks for small-car purchases will expire; and the city of Beijing, in an effort to reduce traffic congestion, will implement measures to restrict new-vehicle purchases.
Still, automakers have high hopes for China. In November, Ford said that it planned to add 66 new dealerships in China by the end of the year, bringing its total to 340. Its joint venture, Changan Ford Mazda Automotive Ltd., is building a new assembly plant and a new engine plant in Chongqing. Ford said that it expected 2010 to be a record sales year in China.
Ford also noted that it expects 70% of its growth in the next 10 years to come from its Asia Pacific and Africa region, which includes China, India, Australia, Thailand and South Africa.
Nissan, meanwhile, said that its joint venture in China, Dongfeng Nissan Passenger Vehicle Co., has grown its sales from 94,000 units in 2003 (when the joint venture was launched) to 1 million units forecasted for 2010. The automaker expects its sales in China to reach 1.15 million units in 2011.
An electric future
Shanghai GM, which is a joint venture between GM and China’s largest automaker, SAIC Motor Corp., recently showcased 23 production and concept vehicles at the 2010 Guangzhou Auto Show. Among its lineup of vehicles on display was the Sail electric car, which Shanghai GM developed with the Pan Asia Technical Automotive Center in Shanghai.
Powered by a lithium-ion battery, the Sail “is an environmentally friendly small car that is targeted at ordinary Chinese families,” GM said earlier this month.
Deloitte’s Giffi believes that electric vehicles could be in high demand in China, as the Chinese government pushes for a “cleaner, greener future.” The government has said that it wants China to be the world’s largest producer of electric vehicles, and in June it launched a pilot program offering rebates for purchases of electric and hybrid vehicles.
The state-run Xinhau news agency earlier this year noted that China will spend more than 100 billion yuan (U.S. $15.1 billion) over the next decade to spur green-vehicle manufacturing.
“I think you’ll see a more rapid uptake of electric vehicles in China, because you’re getting a stronger push from the government,” Giffi says. “You have an infrastructure that’s going to build out more rapidly, and I think [the government is] going to push the issue for environmental and for energy reasons, making it one of the most attractive markets in the world for electric vehicles.”
Another high priority for the Chinese government, Giffi notes, is urbanization of the nation’s population, an effort that is “still in its infancy.” That push also will have major implications for automakers trying to make inroads into the Chinese market.
“Even though today when you look out on the Chinese roads you pretty much see a Western design for automobiles, I think what you’re going to see in China is the notion of urban planning coming together with their redesign of their energy infrastructure, which is going to be the opportunity and the challenge for automakers to capitalize on that,” Giffi explains. “The personal mobility component of that will force [automakers] to innovate and come up with new products, and frankly most of those things are products that they don’t have today.
“The sizes of vehicles and the materials and propulsion systems that may never be applicable in the U.S. market are going to be critical if you want to capture what we expect to be the 35 million, 36 million units that are going to be out in China over the next 10 to 15 years.”
