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Hot car sales in China cool down
(Shenzhen Daily/Xinhua)
Updated: 2004-12-02 11:20
As China’s high-flying automobile sector plunges back to earth, car companies
that appear to be falling fastest are those that reached out to a new middle
class — only to discover it’s not quite there.
A car dealer in
Nanjing, east China's Jiangsu Province, promotes car sales by offering
discount up to 5,000 yuan off in this October 22, 2004 file photo. In the
past few months, China’s sedan sales have stalled, auto production has
shrunk and fat profit margins have evaporated.
[newsphoto] | In the past few months, China’s
sedan sales have stalled, auto production has shrunk and fat profit margins have
evaporated.
While many analysts did not expect China’s auto market to grow so fast the
past two years, few thought it would slow so abruptly, either.
Some of China’s best-known car companies have been caught off guard amid
major expansions to reach buyers who are more price sensitive. Many assemblers
are now reporting poor earnings and their share prices have plummeted.
The CITIC Auto Industry Index, which tracks auto companies listed in both
Shanghai and Shenzhen, has plunged 44.35 percent since the start of this year,
compared with a 7.8 percent decline for the Shanghai Stock Exchange’s composite
index.
“People are holding off on buying cars. Investors are holding off on buying
auto shares,” said Hu Song, an auto analyst with Haitong Securities.
He blames stiffer competition and rising raw-material costs for thinner
corporate profits. “The prospects for both markets are so uncertain now,” he
said.
Car dealers resort
to the use of young models to promote their sales in Luoyang, Henan
Province in this September 12, 2004 file phto. In the past few
months, China’s sedan sales have stalled, auto production has shrunk and
fat profit margins have evaporated.
[newsphoto] | The sudden cooling of a hot industry has some exposed age-old business risks
in China. A period of explosive growth may prove alluring, but not necessarily
serve as an accurate gauge of the market’s true size, according to analysts.
Now as growth tapers off in a range of industries, evidence of
miscalculations is surfacing: empty apartment blocks, a glut in construction
steel and rising stocks of unsold cars.
The “usual mistake is to extrapolate the initial trend of high prices and
growth into 1.3 billion people,” said Andy Xie, Morgan Stanley’s Hong Kong-based
chief economist for Asia.
Last year’s surprisingly strong sales for luxury cars prompted many companies
to bet China’s middle class would be the next market to tap. But only scattered
pockets of middle-class car buyers have emerged, largely in a few big cities.
Industry analysts say even middle-class Chinese — estimated to total about 60
million people — have been put off by banks’ recent, tougher qualifications for
giving car loans and rising gas prices.
Making matters worse, price wars among auto companies have resulted in de
facto decreases in the value of newly purchased vehicles.
Many middle-class families are shouldering other expenses, including rising
costs for health care, school tuition and monthly mortgage payments.
“There was great excitement for the middle class,” said Michael Dunne,
president of Automotive Resources Asia, a consulting group that focuses on China
auto trends. “But these people aren’t buying the US$30,000 cars.”
The upshot is many companies who bet on the emergence of a big middle class
are now taking a hit. Market leader Volkswagen AG has said it will sell fewer
cars in China this year than it did last year. Chinese carmakers Chongqing
Chang’an Automobile Co. and Geely Automobile Holdings, both of which staked
growth on winning customers outside wealthy coastal cities, are now blaming
disappointing sales for their lackluster earnings.
Brilliance China Automotive Holdings Ltd., which is assembling the BMW 325i
and 530i cars, has flopped so far in its efforts to promote its own sleek,
affordable sedan called the Zhonghua. In the first 10 months this year,
Zhonghua’s sales were 51 percent lower than the year-earlier period.
Shares have taken a beating as a result. Shenzhen-listed Changan Auto has
fallen 49 percent since Jan. 1 while shares of Geely Auto and Brilliance, traded
in Hong Kong, have shed 46 percent and 59 percent respectively.
China still remains the fastest-growing major auto market in the world.
Passenger-car sales increased 18 percent in the first 10 months. But sales fell
3.6 percent in September and 1.3 percent in October from the year-earlier
months, and many Chinese car salesmen say they have noticed a sharp downshift in
buyer interest.
“There aren’t so many people as before, and those who come in are hesitant,”
said Wu Xianjia, a sales consultant with Shanghai Celebrities Automobile Co.,
which shows cars made by General Motors Corp.
Some big names, such as Japan’s Honda Motor Co. as well as General Motors,
have continued selling at the high end, while enticing a shrinking number of
more budget-minded customers.
At the lower end, Hyundai Motor Co. of South Korea is squeezing many Chinese
competitors. Having positioned itself in China as a premium brand with its
Sonata, Hyundai last December introduced an economical compact called the
Elantra. Hyundai’s sales in China jumped 162 percent in the year’s first 10
months, thanks largely to the Elantra.
“Certainly we are reaching down market,” said Hyundai spokesman Oles Roman
Gadacz. “At the same time, Chinese customers are reaching up in terms of
quality.”
Still, more and more Chinese who can afford a car aren’t convinced that they
need one.
One 43-year-old textile entrepreneur in Shanxi Province, evokes a pessimistic
view of the market, at least in the near term. The entrepreneur, who asked to be
identified only by his surname Guan, said he held off buying a new Volkswagen
Jetta in May.
Since then, the sticker price has come down 20 percent, but with all his
other expenditures, Guan said he did not plan to reconsider that purchase
anytime soon.
“The value of a car simply goes down the moment you buy it,” he
said.
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