China is driving the world’s car manufacturers toward record sales this year and sharp growth over the coming decade barely 18 months after the global financial crisis plunged the industry into its deepest slump in a generation.
PricewaterhouseCoopers, the global consulting and financial advisory company, expects global production of cars to reach a record 69.9 million units this year and soar to 93.5 million by 2016, with most growth coming from China.
|China overtook the U.S. as the world’s biggest automobile market in 2009 and is consolidating its lead, with sales surging 40 percent in the first eight months of the year to almost 12 million units. Sales are expected to reach 16.5 million units by the end of the year, up 20 percent on 2009.
The country’s climb to the top of the world’s automobile manufacturing market is a bonanza for the leading ocean car carriers as they recover from 2009’s steep slump, when vessel sailings shrank by more than a third and a record number of ships were laid up.
With exports from Japan to North America and Europe — the mainstay of deep-sea car shipping over the past three decades — showing only modest growth, China is likely to become the main market driver for the foreseeable future.
China’s emergence as the largest and fastest-growing auto market — sales jumped 45 percent in 2009 — is a full 10 years ahead of forecasts, prompting a major strategic re-evaluation by the largest U.S., European and Japanese automakers.
Signs that China was a new force among global auto markets came in August, when privately owned automaker Geely acquired Ford Motor’s Volvo unit for $1.5 billion. A month later, Shanghai Automotive Industry, the nation’s largest automaker, expressed interest in General Motors’ forthcoming initial public offering.
For now, China’s domestic market is attracting most of the attention, with foreign manufacturers — and their mandatory local joint venture partners — racing to keep pace with runaway sales and boost market share.
GM, the market leader in China, expects to surpass the 2 million sales barrier in 2010, four years ahead of schedule. And Toyota expects sales in China to grow 13 percent this year to more than 800,000 and that it likely will overtake those in Europe for the first time.
U.S., European and Japanese manufacturers are ramping up their investments in new Chinese plants as families in the nation’s bulging middle class buy their first cars, with foreign models apparently high on the preferred list.
Volkswagen recently increased its budget for China by $1.7 billion to build two new plants. That takes planned spending for the next three years to $8.3 billion as the German automaker bids to boost sales by almost a third to 2 million units by 2018.
BMW is investing $785 million in a second plant in China and says eventually it could boost annual capacity sevenfold to 300,000 units to meet soaring demand for premium models.
France’s PSA Peugeot Citroen aims to more than double its market share in China from 3.4 percent in 2009 to 8 percent by 2020, when the country will be its biggest market.
Besides providing a mass market, China is an enticing profit center for foreign manufacturers facing wafer-thin margins in their competitive and slow-growing — or stagnant — mature markets. China accounted for 12 percent of BMW’s sales in the second quarter but contributed more than 30 percent of its $1.1 billion after-tax profit.
Chinese companies have captured about 30 percent of the domestic market with small and cheap cars. And, while adding much more capacity than their foreign rivals, their failure to build brands to attract fickle Chinese tastes could derail their bid to capture half the market by 2015.
That bodes well for pure car and truck carriers, increasingly the mode of choice for European automakers as their exports to China increase at a double-digit clip, even as sales at home stagnate in the wake of expired stimulus and cash-for-clunkers programs.
Daimler, the German automotive giant, this year switched its China-bound car exports from Maersk Line container ships to car carriers operated by Japan’s NYK Line and “K” Line because shipments reached the critical mass when dedicated car carriers make sense and are cheaper than container transport.
And Korean ro-ro carrier Eukor in January launched a direct service from Europe deploying its latest 8,000-car capacity ships.
China also is boosting the short haul intra-Asian ro-ro trade as Japanese and Korean automakers look to take advantage of the giant market on their doorstep. This led WWLogistics, the Scandinavian carrier, to boost frequencies on its China Express Service between Japan, South Korea and China.
But there are also fears, voiced mainly by the Beijing government, that automakers will face a market glut by 2015 when capacity reaches 31 million units a year, double the size of the U.S. market.
Those concerns grew over the summer as Ford’s shipments slowed 6.3 percent in July and GM reported an increase in unsold inventories. Forecasts that the market will grow “only” 15 to 20 percent this year, or half the 2009 rate, also are contributing to Beijing’s anxiety.
Talk of a glut also is fueling fears that local companies will dump unsold cars on world markets, sparking trade wars with China’s trade partners. “The glut will be destined for exports and that will increase trade tensions,” former U.S. Trade Representative Charlene Barshefsky, told an auto industry conference in China last month.
Most industry analysts, however, say the problem isn’t excess capacity, but a lack of it, especially among the top 10 manufacturers accounting for 90 percent of the market.
The Chinese government has been pressing for several years, with little success, for China’s 100-plus manufacturers to consolidate into four state-owned firms that would produce 2 million vehicles a year each and four smaller companies producing 1 million.
China overtook Germany as world’s top merchandise exporter in 2009, but overseas automobile sales remain relatively modest compared with domestic sales. Still, exports reached 336,000 units in the first eight months of 2010, up 80 percent from a year earlier, according to the China Association Automobile Manufacturers.
For now, though, Chinese companies are limited to exporting to emerging markets with low safety and emissions standards because they can’t match the higher specification models of their foreign rivals.
Geely, Volvo’s new owner, expects to build some 400,000 small Chinese cars this year, of which just 5 percent will be exported, mainly to developing nations. But by 2015 the company plans to produce some 2 million cars, half of which will be sold outside China.
State-owned Chery, China’s largest car exporter, expects to double overseas sales this year to 100,000 after 2009 shipments sank during the global financial crisis, and to grow another 50 to 100 percent next year.
And BYD, an automaker that started out as a battery manufacturer, plans to become a major player in the electric car market. Helped by a 10 percent ownership stake by billionaire investor Warren Buffett, BYD will start selling electric and hybrid cars in Europe next year. It would be the first Chinese company to enter Europe’s alternative energy business.
When the inevitable Chinese export engine revs up, the major Japanese ocean car carriers — “K” Line, NYK and MOL — as well as Europe’s WWL and Hoegh Autoliners will be in prime position to capture the traffic.
Contact Bruce Barnard at email@example.com.