China looks like it will be going through its own kind of post cash for clunkers hangover in 2010 that Europe and the US has experienced in the 4th quarter of 2009. Sales surged in 2009 by an average of 40% to some 13.6 million cars and trucks boosted by a halving of the tax on vehicles with engine sizes less than 1.6 liters. Sales of car with sub 1.6 liter engines made up 85% of the growth in the overall vehicle market according to the China Association of Automobile Manufacturers quoted in Bloomberg. But such sales growth cannot continue forever and the government’s plans to withdraw the stimulus have already had a profound effect on projections for 2010. Miao Wei, vice minister of industry and information technology said China’s vehicle sales growth may slow to 15% this year although some analysts are forecasting even lower growth of 5-6% according to Marketwatch.
SAIC Motor Corp’s. stock price, China’s biggest automaker, has tumbled 12% this year, (after the stock more than quadrupled in 2009) when the car-maker forecast an increase for 2010 of less than 15% in industry wide sales this year. Ford seems to agree. After seeing sales at their passenger vehicle joint venture, Changan Ford Mazda Automobile Co., rise 55% to 315,791 units in 2009 and sales at their commercial vehicle joint venture, Jiangling Motors Corp., total 114,688 units, a 21% rise in 2009, Ford is only predicting an industry-wide rise of 10% according to Nigel Harris, general manager of Changan Ford Mazda. Even so, Ford is predicting their share of the market will rise and following the introduction of new models is predicting double digit growth for the company in 2010.
Growth of 5 to 15% depending on who turns out to be correct is still respectable for what should remain the largest auto market in the world. At 10.6 million in the US and 13.6 million in China, growth in both markets of this magnitude will only increase the gulf between them. Good news for GM and Ford’s Chinese subsidiaries but let’s hope the phenomenal growth in sales during 2009 hasn’t spurred excessive investment in domestic component suppliers. Such dramatic swings in growth have lead in the past to over-investment in other industries. After such a surge in growth and filled with confidence for the future the last thing the Chinese auto industry needs is to follow so many other Chinese industry segments into over investment.