Vroom vroom. Car sales, swooning in the rest of the world, leapt 48.5 per cent in China in June, year-on-year, fuelled by government incentives. And forget protectionism. Foreign carmakers are making hay too; General Motors' sales in China are racing ahead, while BMW and Mercedes have been approved as official cars for bureaucrats. Those late to the party are piling in: Italy's Fiat this week signed a €400m joint agreement to make cars and engines in China. Chinese manufacturers, meantime, are still bent on acquiring overseas assets, undeterred by earlier mishaps. Beijing Automotive Industry Corporation is bidding for GM's Opel business in Europe.
Road conditions ahead look good. Penetration in China is still minuscule, at 3 per cent of the population. Vehicle sales this year, forecast at 11m, put the country on track to overtake the US as the world's biggest car market. Beijing has long sought to build its automotive industry, mindful of that industry's role as a linchpin of the manufacturing prowess of the US and Japan. Regardless of the fact that it has failed to deliver a national champion, Beijing will continue to support the industry. That includes direct support: CSM worldwide, the car consultancy, estimates 6 per cent of cars are bought by the government.
But there are potholes, including last month's hike in gasoline prices which makes it more expensive to fill the tank in China than in the US. Competition is escalating, and not just due to newcomers. Original equipment manufacturers are raising the stakes and branching out into design. All told, the Chinese market will see 80 new models this year, CSM reckons, probably heralding a fresh round of price cuts as manufacturers vie to flog their cars. Squeezed margins mean profits are tracking lower for the top 19 domestic players so far this year. Prepare for more braking further down the highway.
