Chinese Carmakers Turn to Exports for Growth

Later today MetalMiner will publish its monthly Auto MMI or monthly metal price report covering the metal price trends for the auto sector.

We find it unusual for an industry to dramatically increase exports due to too much competition in the home market. Usually an industry looks to export on the back of a strong domestic market position. But then again, China continues to break many molds. Car production appears as one of them.

A Financial Times article explains that China’s car market has slowed along with the domestic economy. Passenger car sales rose only 6.9% in the year to October. For the developed world, a 6.9% rise in domestic car sales appears quite attractive. However, Chinese car makers had benefited from stimulus tax incentives initiated by the government following the 2008-9 slump which favored domestic car producers. China’s domestic manufacturers have less than 30% of the market. The US, European, Japanese and Korean firms who produce better quality cars with more advanced features that appeal to China’s growing middle class account for the balance.

So for most automakers, the answer seems,  “if you cant beat them join them.”  Passenger car exports rose 43% year over year in October as sales for January to October topped those for all of 2011. But unlike Japanese cars in the 70’s, taken as a whole Chinese car manufacturers reputation for quality does not match their reputation for low price. We’ll give them cheap but not sophisticated. Consequently, China’s top car export markets for the first three quarters of this year included Algeria, Iraq, Iran, Russia and Chile. The article looks at the top few manufacturers by size to better understand a fragmented market that comprises some 300 producers.

Chery, the largest car exporter with 165,000 foreign sales in the first ten months of the year, says 30% of its sales come from overseas. The company’s lower priced models happen to also serve as the company’s best sellers. Meanwhile, Geely, owner of Volvo and the second-largest exporter so far this year, has enjoyed 10% domestic sales growth. They don’t need exports, nevertheless their exports continue to rise.

We will continue this story in a follow-up post.



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