These look like successful period for carmakers in the Motherland of Chinese . Since January, when Beijing introduced measures to shore up the auto industry, sales in the mainland have jumped 23%, and for the year the increase could hit 26%, Hong Kong-based brokerage CLSA reckons. That would mean 2009 sales of 11.8 million carriers , making China the world’s top auto market. “I think China has adopted for good,” says CLSA analyst Scott Laprise.
Puzzle , at least for carmakers , is that those surging sales don’t produce the kind of uses most companies wish to have . China’s stimulus package included tax breaks on cars with small engines and subsidies for mini-trucks. During July, sales of vehicles eligible for state support soared 49%, but many of these cars earn manufacturers as little as $100 each, according to researcher J.D. Power & Associates (MHP). Sales of bigger, more profitable vehicles were unchanged, so earnings for automakers are up less than 5%, J.D. Power says. “The tax cuts absolutely affected my choice,” says Cui Tao, a 25-year-old resident of Tianjin who just bought a Geely Vision sedan for his fiancée. “I would have had to pay thousands more for a bigger car,” he says.
The change has been hardest on the joint ventures of global car producers . They tend to focus on larger, more expensive cars, while Chinese manufacturers concentrate on smaller, cheaper models, putting them in a better position to gain from Beijing’s stimulus measures. Shenzhen-based BYD Auto, for instance, has seen its sales soar 183%, to 208,000, in large part thanks to a hot-selling hatchback.
Compare BYD to Toyota Motor (TM). The Japanese giant’s China sales are rised just 5% this year, in spite of the introduction of two new SUVs. That’s a big change from last year, when Toyota’s mainland sales jumped by 18.5%, to 570,000 vehicles. While the company doesn’t disclose its China benefits , Yuzo Ushiyama, who left in June as Toyota’s China chief, hints that the preference for smaller vehicles has hurt. “Relatively inexpensive cars are selling quite well, but in China that segment is not [where Toyota competes],” he said in a May interview. “We have to address the short-term decline in profitability.”
Even worldwide automakers with surging sales are having trouble getting any strong benefits . General Motors has sold 43% more cars in China this year than in 2008. But three-fifths of its mainland sales come from its Wuling unit, which mostly makes tiny commercial vans that cost as little as $4,300. GM doesn’t reveal its China profits, but in the first quarter its Asian operation, of which China is by far the largest part, was in the red.
Sure , growing sales help offset shrinking margins. But the potential earnings from the world’s new No. 1 market are far smaller than those in the pre-crisis U.S., where Toyota made about half its global uses before the slump. Says Ashvin Chotai, managing director of consultant Intelligence Automotive Asia: “It will be very hard for automakers to turn China into a cash cow like the Japanese did with North America.”
More current events news. Read other business current event on the current events news site.