China is a key automobile market which is growing rapidly. For the past few years, automakers, both global original equipment manufacturers (OEMs) and local Chinese players, have made aggressive investments into the country. The vehicle penetration rates are low?only about 40 out of every 1,000 people own a vehicle?compared with an average of 600 in mature markets and over 800 in the US. China was not an exception to the global slowdown and falling global demand for Chinese exports created a huge strain on the Chinese economy. China?s automotive sales also cooled down, from 20%-plus growth rates to 6% in 2008 and actual sales contracted during the third and fourth quarters of 2008 by 1% and 4%, respectively.
Although the Chinese economy heavily depends on exports, unlike India, where the growth is mainly from the domestic market, all the fundamentals look encouraging in the long run. China?s alliance group includes key global as well as some local OEMs. The key global OEMs include GM, VW-Porsche, Toyota, Hyundai, Renault-Nissan and Ford, while the local OEMs include Cherry, Chang?an, Dongfeng and Geely. Both GM and VW-Porsche are continuously making a significant push into the Chinese market and they are expected to add roughly 9,00,000 units of assembly between the two. The year 2008 was not very good for Cherry but the company may bounce back with better products and multi-brand strategy; it may also move up in its ranking from the ninth-largest automaker in China to sixth by 2012. In addition to the top-15 automakers, there are around 24 automakers that cumulatively had less than one million assembled units in 2008. Over the next few years, consolidation (both market-driven as well as government supported) would drive many weak players out of the market.
China unveiled a $585-billion stimulus package last November and ten specific industry stimulus plans were introduced to shore up the demand in the Chinese economy. The incentives mainly included increase in the subsidy for those who are willing to trade their older, polluting, gas-guzzlers for the newer, fuel-efficient and lower emission vehicles, and a onetime allowance to farmers to upgrade their vehicles. There were also initiatives surrounding availability of finance etc. In addition, there were reduction in taxes from 10% to 5% on cars whose engines are less than 1.6 litres. These initiatives have reflected in an increase in sales year-on-year in July 2009. There are both upsides and downsides that may impact the automotive industry in 2009-10. For instance, the economic stimulus package may or may not help in maintaining a sustained growth rate and also that the Chinese OEMs may fail to create a viable product for the mature markets, which may result in a decline in the exports.
Currently, exports are mainly driven by Chinese brands. Over the years, foreign automakers are also likely to leverage China to cater to their export market. PricewaterhouseCoopers Automotive Institute projects that the light vehicle assembly will approach the $12 million mark in 2013, with the exports accounting for roughly 4% of the total assembly.
The author is leader, automotive practice, PricewaterhouseCoopers