Slower Economy + Tighter Credit = Cheaper Cars
The good news: Chinese buyers apparently love Buicks — a fact that helped GM boost sales in China by 13.4%. The bad news: Other manufacturers took a hit. Ford, which has a smaller China presence than GM, saw its sales slip by 7%. Luxury brands felt the most pricing pain, however, with J.D. Power reporting high-end vehicle demand fell from 48% in the first eight months of 2010 to 29% for the same period this year. Dealers also are now carrying high inventories. To cope, BMW and Mercedes dealerships are cutting prices of some models by nearly 20%.
The Coming EV War
By 2015, China will be the leader in electrical vehicle sales, according to Pike Research. About 55 vendors are developing electrified vehicles or launching EV development programs and are on track to create a new category of clean transport vehicles. China also will become one of the largest global consumers of EVs. The country is even offering foreign manufacturers huge incentives to build these green vehicles. But there’s a catch: To get the incentives, they must surrender the intellectual property rights for the technology to a Chinese automaker. Despite its huge presence in China, that was a non-starter for GM, which so far has not ponied up the blueprints for the Chevy Volt.
Waking The ‘Sleeping Dragon’
“Let her sleep,” Napoleon Bonaparte famously said of China. “For when she wakes, she will shake the world.“ That sentiment is particularly true in the automotive market. Chinese vehicle exports surged 57% in the first half of this year and could total 800,000 vehicles by the end of this 2011. By boosting manufacturing capacity and focusing on low- to mid-priced models, Chinese automakers collectively could build 40 million vehicles a year, a state-planning agency said. That kind of volume is bound to send a temblor through Western car makers’ growth strategies — even with the lucrative partnerships they have in place.
Everyone is chasing the China opportunity because they have to — it’s where future market demand is going to be. So far, U.S. automakers like GM and Ford are more than holding their own. General Motors’ Shanghai GM joint venture alone rose 22%, while Ford Motor China’s sales for the first eight months of 2011 rose 11%. Still, challenges remain in the area of timing and expectations. Like warfare, the art of global competition in the automotive sector is “a road either to safety or to ruin.” The winners in this race will be the companies that see the opportunity as it is and make the right bets for the long term.
As of this writing, Susan J. Aluise did not own a position in any of the aforementioned stocks.