Small, big cars beat the recession in China (Feature)

By Bill Smith Sep 9, 2009, 8:12 GMT

   Beijing - As economic recession brings only pessimism to auto markets in Europe and the United States, China is bucking the global trend with strong growth in both cheap compact cars and luxury models.

   Vehicle sales were expected to reach 12 million in China this year, including about 10 million passenger cars, according to the government.

   Sales in the recession-hit United States are forecast to slump to just more than 10 million, which would allow China to surpass the United States as the world's biggest car market.

   'This year, the Chinese car market experienced a boom with sometimes more than 30-per-cent growth, which we have not seen even in the best years [previously],' Winfried Vahland, president of Volkswagen Group China, said.

   'All of our locally produced brands of Volkswagen, Audi and Skoda had record sales in the past months,' Vahland said.

   'At the moment, we are sold out, and we are working to expand our production capacity,' he said.

   Vahland said the Volkswagen Group, which is number one in sales of passengers cars in China, expected to record 'good double-digit' growth this year in the country.

   'China will definitely become the biggest car market in the world in 2009 and the biggest market for Volkswagen,' he said.

   The rapid growth in overall car sales continued in August with another 1.14 million vehicles sold, up 82 per cent from the same month last year, the government said Tuesday.

   'The booming sales in August has surpassed even the boldest prediction in the industry as previously sales in August are normally the weakest in the whole year,' Cui Dongshu, a spokesman for the Chinese car industry, told state media.

   Compact, low-price passenger cars have driven much of the growth, but foreign makers of luxury models have also reported strong performance in China.

   'We are very positive if we look at the overall market in China,' Ulrich Walker, Daimler's chief executive for North-East Asia, told reporters earlier this month.

   Sales in China of Daimler's Mercedes-branded vehicles rose 49 per cent in the first seven months of 2009 while China is now the biggest market for Mercedes S-class cars.

   'China is becoming an important pillar for Daimler,' Walker said.

   Car loans are proving 'more and more important' for financing private car purchases in China, he said.

   Many analysts have attributed the sales growth of smaller cars to efforts by the Chinese government to stimulate domestic demand through tax incentives and subsidies of some vehicle sales.

   Cui said 'robust natural growth' mirroring China's stable economic expansion was also responsible for the surge.

   Two of China's biggest makers of small passenger cars, Chery and Geely, aim to raise their production from around 400,000 each this year to about 2 million in 2015, the Global Times newspaper reported this week.

   More than 90 Chinese and foreign vehicle brands are already competing in China, offering about 400 models, according to US auto analyst JD Power.

   The car firms are drawn by statistics showing that China's 1.3 billion people still own just 34 vehicles per 1,000 people, compared with more than 500 cars per 1,000 people in many developed nations.

   Total vehicle production is forecast to match the 12 million sales this year.

   But with most major manufacturers of passenger cars planning rapid expansion of production, officials have warned that the excitement in China's auto industry might be encouraging overexpansion that could lead to a glut of cars in the near future.

   'As market growth slows down due to a lack of favourable policies and uncertainty about the future, we could very likely see more excessive supply in the auto industry,' said Chen Bin, an auto industry official at the government's National Development and Reform Commission.

   Within two years, Chinese carmakers were likely to produce more vehicles than they can sell, the Global Times quoted Chen as saying earlier this week.

   The government is trying to encourage automakers to invest less in expanding production of mass-market vehicles and spend more on the development of fuel-efficiency and alternative fuel technology.

   Yet most Chinese firms, as well as Volkswagen and other foreign automakers, are pressing ahead with bold expansion plans.

   Volkswagen aims to unveil at least four new or updated models annually in China under its 'Strategy 2018' programme, focussing on models tailored to Chinese buyers.

   'We believe that the Chinese car market will continue to grow in 2010 although not as fast as 2009,' Vahland said.