China’s auto industry takes off

Eric Baculinao Beijing Bureau Chief

BEIJING - Sha Heping was a proud husband on New Year’s Eve as he put down the deposit for a $15,000 subcompact with the optional sunroof, a gift for his wife who used to commute to work by bicycle every day, even in biting winter cold.

With savings from over 20 years of service as a Beijing government functionary, Sha is the latest statistic underpinning the world’s hottest market.

China sold an estimated 7 million vehicles last year, extending its lead over Japan as the world’s second-biggest auto market after the United States, and like Sha, most of the buyers were first-time car owners.

Leaps and bounds
China’s auto market has grown by leaps and bounds since it passed 1 million units a year in 2002.  By 2004, it surpassed Germany as the third-biggest auto market with over 2.6 million units. It roared past Japan in 2005 in terms of domestic sales and could also displace Japan as the No. 2 volume producer by 2011, according to Global Insight, a strategic consulting company. (Japan exports nearly half its output.)

According to Chinese policy researcher Zheng Xinli, by 2020 China could well topple the United States as the world’s biggest auto market with annual output of 15 million units. By then, experts predict, China’s total car ownership could even begin to exceed that of the U.S.

Behind all this are first-time car owners like Sha, who represent a tantalizing 80 percent of China’s car buyers. That is virtually the opposite of more mature markets like the United States, Europe and Japan, where first-time car buyers have stagnated below 15 percent, according to J.D. Power.

With the rapid expansion of China’s urban middle class, analysts predict that first-time car buyers will continue to fire up China’s red-hot market, setting the stage for more massive investments and intense competition among local and foreign car manufacturers alike.

Reversal of fortunes
For America’s auto giants, struggling to reverse declining fortunes at home, China’s market has become the focus of global expansion.  Led by chief executive Rick Wagoner, who predicted two years back a “great gold rush” in China, General Motors is pouring in $3 billion over three years to expand capacity, on the calculation that some 74 million Chinese families can now afford to buy cars.

GM holds the No. 1 position, with 665,390 units sold in 2005 for 11.8 percent market share, and sales grew further in 2006 to 876,747, led by its fast-selling Buick Excelle passenger car. Germany’s Volkswagen, with a decade-long head start in China, is closely catching up as market leader.

In a bold shift in strategy that will pit it head-on against upstart local manufacturers, GM has announced that more resources will be channeled to small car production, which represents China’s fastest-growing market. 

“We are laying a plan to compete better at the bottom end,” declared GM’s president for Asia-Pacific operations at the November auto show in Beijing, citing GM’s spectacular success with a joint venture that has racked up six-fold growth in sales with its bare-bones minivans costing less than $6,000.

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