Slowdown in China? No One Told Automakers

by Jim Woods | July 11, 2012 12:19 pm

Judging by the bevy of bearish headlines coming out of China, you might get the impression that the country is rolling over and playing dead — economically speaking, that is.

In the past month, we’ve seen Chinese policymakers slash the country’s benchmark interest rate[1] not once, but twice. The surprise rate cuts have been interpreted by many China watchers as clear evidence that the second-largest economy in the world is slowing precipitously, and that Beijing is in a panic to do whatever it can to stave off the so-called “hard landing” scenario.

Well, someone forgot to tell China’s car-buying public that the country’s economy is in jeopardy, because last month American auto giants Ford (NYSE:F[2]) and General Motors (NYSE:GM[3]) saw record June sales in the country.

Ford said its passenger car sales in China surged a spectacular 28% in June, with sales led by its Focus compact car — a model that, not coincidentally, is being built at a new plant in Chongqing. In June, Ford improved its Chinese passenger and commercial vehicle sales by 18% year-over-year, to 52,400. Meanwhile, first-half sales for 2012 rose to 277,322. The record sales month in June is the third consecutive month of record sales in China for Ford.

Yet when it comes to auto sales in China, the real horsepower comes from rival GM.

General Motors also reported record June China sales, with 213,495 total vehicles sold. That number is up a stunning 10% from a year ago, as the gains were seen in brands such as Buick and its China-focused Wuling brand. GM also had record sales in the country for the first six months of 2012, with nearly 1.42 million vehicles sold — that’s 11% better than a year ago.

So much for China’s economic slowdown.

The appetite for American vehicles in China is healthy, but so too is the appetite for Japanese-made vehicles. Toyota Motor Corp. (NYSE:TM[4]) also had a good month of sales in China. The company, along with its two local joint-venture partners, saw June sales spike 18.6% in June to about 70,500 vehicles. For the first six months, the Japanese automaker sold roughly 442,500 vehicles, almost a quarter better than in 2011.

The record sales in China for both Ford and GM, as well as the sound metrics for Toyota, come as one of China’s largest cities imposed limits on new-car sales to ease gridlock and address poor air quality. On July 1, the city of Guangzhou became the fourth city (Shanghai, Beijing and Guiyang being the first three) to impose limits on new-car sales[5]. In Guangzhou’s case, the limit is 120,000 cars annually, or 10,000 per month.

If more cities move to impose similar limits on new car sales, it eventually could have a negative impact on sales. However, GM isn’t worried. According to a statement by Kevin Wale, president of GM China Group, “We expect sales growth to remain steady in the second half, driven by demand in China’s interior provinces.”

German auto giant Volkswagen AG (PINK:VLKAY[6]) also is bullish on China. The company recently announced plans to build an assembly factory in the central Chinese city of Wuhan with its local joint venture partner, China FAW Group. The German manufacturer is increasing its footprint in the world’s biggest auto market, and for good reason.

VW’s flagship luxury brand Audi saw China sales grow by just more than 13% to 133,050 vehicles in June. For the first half of the year, worldwide sales for the brand rose 12.3% to 733,250 vehicles — a metric largely fueled by a 37.8% gain in its China volumes. These amounted to 193,871 vehicles during the same period.

That means every fourth Audi sold in the world is delivered to a customer in China.

For automakers, there is no slowdown in China. That’s good for automakers, for the health of the Chinese economy — and for investors betting on the global growth play that is the auto industry.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

  1. slash the country’s benchmark interest rate:
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  3. GM:
  4. TM:
  5. to impose limits on new-car sales:
  6. VLKAY:

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