Global carmakers converge on China as rare slowdown looms
As global carmakers converge on China for the Shanghai Auto Show this week, the industry is bracing for a major slowdown in sales and a potential price war as competition stiffens in the world's largest car market. As the rapidly expanding Chinese middle class hits the road, local manufacturers are reaping the benefits while clouds loom as Volkswagen, Toyota, General Motors and other top names pitch their latest automobile models beginning this Wednesday at China's largest auto showcase.
Sales of passenger vehicles have increased nearly five-fold over the past decade, logging another stellar performance in 2016 and surging 14.9 percent to a record 24.38 million, according to the China Association of Automobile Manufacturers.
However, volume was revised to reflect an upward trend in 2016 thanks to a government purchase incentive. As China's decades-long economic boom loses momentum, sales growth will essentially be stagnant this year and could even shrink in 2018 for the first time in recent memory, consultancy firm IHS Markit said last week. As a boon to customers, IHS Markit said there is already "a major price war descending on the market" as manufacturers and dealers slash prices to move growing stocks.
"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 the El Dorado for carmakers.
Last year's sales set a 26th straight annual high-water mark, handily beating the record 17.55 million cars sold in the U.S., which China zoomed past eight years ago to become the planet's top market.
But 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 will be restored to 10 percent in 2018, with an expected dampening effect on sales.
More broadly, analysts say China's automotive landscape is rapidly maturing as consumer tastes evolve, and success will depend on manufacturers' capabilities in meeting those tastes. China now has a crowded field of mostly domestic carmakers, many of which won't 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," Karlberg said. Manufacturers are rushing in particular to capitalize on still fast-growing demand for sport-utility vehicles and "new energy" cars.
Sales of passenger vehicles have increased nearly five-fold over the past decade, logging another stellar performance in 2016 and surging 14.9 percent to a record 24.38 million, according to the China Association of Automobile Manufacturers.
However, volume was revised to reflect an upward trend in 2016 thanks to a government purchase incentive. As China's decades-long economic boom loses momentum, sales growth will essentially be stagnant this year and could even shrink in 2018 for the first time in recent memory, consultancy firm IHS Markit said last week. As a boon to customers, IHS Markit said there is already "a major price war descending on the market" as manufacturers and dealers slash prices to move growing stocks.
"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 the El Dorado for carmakers.
Last year's sales set a 26th straight annual high-water mark, handily beating the record 17.55 million cars sold in the U.S., which China zoomed past eight years ago to become the planet's top market.
But 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 will be restored to 10 percent in 2018, with an expected dampening effect on sales.
More broadly, analysts say China's automotive landscape is rapidly maturing as consumer tastes evolve, and success will depend on manufacturers' capabilities in meeting those tastes. China now has a crowded field of mostly domestic carmakers, many of which won't 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," Karlberg said. Manufacturers are rushing in particular to capitalize on still fast-growing demand for sport-utility vehicles and "new energy" cars.