General Motors Co’s US$5 billion initiative to create cars for China and other emerging markets comes just as carmakers face a collapse in the booming Chinese demand they were counting on to power their growth.
June sales in the world’s biggest car market by vehicles sold fell 3.4 percent from a year earlier as an economic slowdown deepened and smog-choked cities tried to curb growth in car ownership. Sales growth has cooled from 2009’s explosive peak of 45 percent, but the latest figures surprised analysts, who were forecasting a healthy 7-8 percent for this year.
Volkswagen AG yesterday said its second-quarter profit fell 16 percent due partly to weakness in China, where first-half sales dropped 0.5 percent.
Those still buying cars are benefiting: GM and VW, China’s top-selling brands, have cut prices by up to 53,900 yuan (US$8,700). Analysts said dealers are struggling financially and carmakers might have to share more profit with them.
“The days when you could sell whatever car you made are not there anymore,” said Lin Huaibin of IHS Automotive.
The shift is significant because of China’s role in the global ambitions of United States, European and Asian carmakers. Despite the slowdown, they are pushing ahead with multibillion-dollar plans to expand production and create models to suit Chinese tastes, adding to competition in a crowded market.
On Tuesday, GM said it will work with Chinese partner Shanghai Automotive Industries Corp to develop vehicles to be sold in China, Brazil, India and Mexico. GM said it aims for annual sales of 2 million vehicles beginning in 2019.
In April, Ford Motor Co and a local partner said they would spend US$1.1 billion on a factory in China’s northeast. Ford said it would add 200,000 vehicles to its annual China production capacity.
China overtook the US in 2009 as the biggest market by number of vehicles sold as incomes rose and Beijing promoted the industry as an engine of economic development.
Double-digit Chinese sales growth helped to buoy global carmakers after the 2008 financial crisis crushed demand everywhere else.
Carmakers added bigger backseats and other features for Chinese buyers, changing the look and feel of cars sold worldwide. Nissan Motor Co made China a pillar of its global turnaround strategy.
Companies were preparing for slower growth, but the squeeze hit faster than many expected.
“The impact to earnings in 2015 could be substantial,” said Bernstein Research in a report.
“We still expect China to sell a lot more cars in future years, but returns in the market may never be the same again.”
First-half sales rose 4.8 percent, down from 11.2 percent in the same period of 2014, according to the China Association of Automobile Manufacturers.
Even that might overstate demand. Analysts said carmakers have shifted to reporting shipments to dealers instead of retail sales, possibly to obscure how few cars are being purchased.
Last week, South Korea’s Hyundai Motor Co said China sales fell 14 percent from a year earlier in the three months ending in June.
As early as March, BMW AG warned the China outlook was darkening. Europe’s biggest luxury carmaker said its Rolls Royce unit had sold only 14 cars to Chinese buyers in February.
The downturn is so severe that Barclays slashed its forecast for this year’s sales growth to just 1.7 percent from 8.5 percent. Next year’s forecast was cut to 5.2 percent from 8.5 percent.
Chinese sales still are huge. GM said a record 1.7 million GM-brand vehicles were sold in the first half of the year, but growth was just 4.4 percent — less than half the 10.7 percent rise for the first half of last year.