Europe and China: A Tale of Two Auto Markets–Or Maybe Not

Europe’s carmakers are, on the whole, having a torrid time.

Car sales in the EU stood at 13.1 million in 2012, down from 16 million in 2008, and are on track to fall by around 7% this year, says the FT, to just over 12 million vehicles. EU factories have the installed capacity to build a little over 19.1 million cars per year.

The financial impact, says the paper, is that six out of 10 car factories are losing money as sales levels continue to slide and manufacturers sit on about 7 million cars per year of unused capacity.

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Naturally, there are winners and losers.

Germany’s car plants are running at about 80%, helped by the strength of industry leader Volkswagen Group and premium brands such as BMW and Mercedes, who enjoy strong exports.

But others, like Fiat, are running at 50%, and most volume carmakers are hemorrhaging cash – Peugeot burned through $3 billion last year and Ford Europe $1.8 billion with no prospect of a pick-up before the middle of the decade.

One bright spot for the luxury end of the market has been exports, particularly to Asia, but a recent announcement by the China Automobile Association reported in another FT article that they intend to curb new vehicle registrations in eight more Chinese cities, which is likely to hit sales in what has been the world’s largest car market this year.

Cars Per People in China

In China, there are just 58 cars per 1,000 people, around a tenth of Europe’s level, so expectations had been for car sales to continue to rise from around 15 million per year now to 22 million per year by the end of the decade. If CAAM follows through with their plan, curbs could be imposed in Tianjin, Shenzhen, Hangzhou, Chengdu, Shijiazhuang, Chongqing and Qingdao as part of a gradual extension across the country, as Beijing tries to curb congestion and air pollution.

The curbs take the form of either annual limits on the number of registrations or plates sold by auction; in Shanghai, they are going for an average of $12,700 last month, the FT reports.

Luxury car sales were already under pressure in China following the government’s austerity program, and with Beijing finally trying to tackle car ownership in major cities (note: there are over 160 cities of greater than one million people in China – this program potentially has a long way to go), new car sales will struggle to grow, as had been anticipated by domestic and foreign carmakers.

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Read more from Stuart Burns.

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