Global carmakers converge on China
Industry bracing for sharp sales slowdown
SHANGHAI, April 16, (AFP): Global carmakers converge on China for the Shanghai auto show this week, with the industry bracing for a sharp sales slowdown and potential price war as competition stiffens in the world’s biggest car market.
Manufacturers have reaped a windfall as the fast-expanding Chinese middle class hits the road, but clouds loom as Volkswagen, Toyota, GM, and other top nameplates pitch their latest models starting this Wednesday at China’s biggest auto showcase.
Passenger-vehicle sales have nearly quintupled over the past decade and logged another stellar performance in 2016, surging 14.9 percent to a record 24.38 million, according to the China Association of Automobile Manufacturers.
But volume was skewed upward in 2016 by a government purchase incentive. As China’s decades-long economic boom loses lift, sales growth will essentially be flat this year and could even shrink in 2018 for the first time in memory, consultancy IHS Markit said last week.
In a boon for consumers, IHS Markit said there is already “a major price war descending on the market” as manufacturers and dealers slash prices to move growing stock. “The threat now for international automakers is that if local players begin cutting prices ... there will be a rampant price war across the market as automakers compete to attract new car buyers,” it said.
Such troubles must be kept in perspective: China is still El Dorado for carmakers.
Last year’s sales set a 26th straight annual high-water mark, handily beating the record 17.55 million cars sold in the United States, which China zoomed past eight years ago to become the planet’s top market.
But sales were boosted by the government’s halving of a 10-percent purchase tax on small-engine cars in late 2015. That tax has been raised to 7.5 percent this year and will be restored to 10 percent in 2018, with an expected dampening effect on sales.
More broadly, analysts say China’s automotive landscape is rapidly maturing as consumer tastes evolve, and success will depend on manufacturers’ capabilities in meeting those tastes.
China now has a crowded field of mostly domestic carmakers, many of which won’t survive, said Johan Karlberg, a Shanghai-based partner with global consultancy Roland Berger.
“There’s just not room enough for that many players any more. Many of the smaller ones will simply die a slow,
“It’s certainly good for Hebei and the regional economy, but it’s a disaster for mid- and small-sized business like ours,” said Hu, staring at the bare concrete walls of the four-storey dream home he began building last year but will never be able to finish.
Though authorities have not yet told him what is next, he is bracing for things to progress in the fashion that has become typical for government mega-projects: forced relocation and modest monetary compensation.
The changes will scatter his 40 local employees, each painstakingly trained for two years to produce the winter jackets that Hu’s Yuhua Clothing Manufacturing sells to clients in Moscow.
And land prices elsewhere are guaranteed to be out of his reach.
“To build another factory or another villa like ours will be impossible. It’s a terrible shame,” he said quietly, unable to stop tears sliding down his face after devoting decades of his life to the business.
“There will be no way to ever compensate us, but this is a huge national issue, so whatever comes we must support it.”
There are some 19 national-level “New Areas” scattered across China, 13 of which have been established since 2014.
But Xiongan stands out: President Xi Jinping personally designated its location during a February trip to the fields just outside Hu’s village of Dawang, according to Xinhua News.
Following the announcement, housing prices doubled in a single day, as speculators queued outside real estate offices, clogging the streets with luxury vehicles as they battled to snap up properties for cash.
This file photo shows a Tesla Model S P85d car displayed at the 16th Shanghai International Automobile Industry Exhibition in Shanghai. Global carmakers converge on China for the Shanghai auto show this week with the industry bracing for a sharp sales slowdown and potential price war as
competition stiffens in the world’s biggest car market. (AFP)
suffocating death,” Karlberg said.
Major carmakers remain bullish, but are scrambling to introduce a slew of new models aimed at Chinese consumers during the Shanghai show, which IHS said has taken on “major importance” as the dynamics evolve.
Manufacturers are rushing in particular to capitalise on still fast-growing demand for sport-utility vehicles and “new energy” cars.
Chinese drivers have latched on to both domestic and foreign-made SUVs as leisure interests grow and rising incomes put a second family car in reach. SUV sales are expected to surpass sedans as early as this year.
Electric vehicle sales have been government-subsidised partly to help reduce China’s notorious air pollution, and the Chinese market is now the world’s biggest and growing quickly.
Quickly
Shocked by the chaos, local authorities quickly imposed strict bans on home sales and ordered brokers to close up shop.
By mid-week, offices across the area were closed, their metal grates pulled down and crosses of white tape over them for good measure.
But individuals with properties for sale were still willing to approach potential buyers with prices that had gone up 300 percent in three days, they told AFP.
An investor surnamed Wang had come to check out opportunities from Beijing, 100 kilometres away, but declined an offer to buy at a rate higher than the average cost of a home in the bustling port city of Tianjin.
“I could’ve accepted some 13 or 14,000 yuan ($2,000) per square metre, but 30,000 is simply too much for an investment of at least ten years where you don’t even know how things will turn out in the end,” he said.
“It’s crazy — they’re still planting crops here! What if Old Xi steps down and they never build anything here at all?”
Currently, the flat fields of the three counties that make up the proposed Xiongan New Area are speckled with traditional tombs — waist-high mounds of dirt topped with fluttering paper offerings.