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China's rise to create truly global auto market

(Agencies)
Updated: 2009-07-11 17:14

According to Michael Robinet, vice president of global vehicle forecasting at CSM Worldwide, heavy trucks account for around a third of Chinese sales -- so a comparable number for 2009 would be around 8 million units.

But while US auto sales are expected to recover with the economy -- to around 14 million units annually -- the market is largely saturated, with more cars than registered drivers.

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China, however, has a long way yet to go.

In a July 6 research note, Credit Suisse analyst Hung Bin Toh wrote that by 2020 "we expect car ownership to reach 148 cars per 1,000 residents," five times current levels.

According to JP Morgan, China is on the threshold of a fresh car sale bonanza driven by rising incomes in third-tier cities that could last a few years.

"We believe this is the start of a third auto boom in China," JP Morgan managing director and China economist Frank Gong told reporters at a July 8 briefing in Hong Kong.

Unlike America, China has a vast pool of "virgin demand" for vehicles as more workers attain middle-class status, CSM's Robinet said.

Think Global, Think Smart

For automakers, China represents the best opportunity to expand sales rapidly without having to battle for market share as manufacturers do in Europe and the United States.

General Motors, for instance, has seen Buick sales in China outstrip US sales two years running.

"China is a good opportunity for GM," Bragman said. "In countries like China, India and South America its brands are not damaged the way they are in the United States."

But while US automakers can gain from the boom, most product development will be done in Europe and Asia -- for instance, Ford Motor Co's new small cars will be based on European platforms. Chrysler Group LLC, owned by a union-aligned trust, the US and Canadian governments, and Italian automaker Fiat SpA, will not develop its own small cars.

"Chrysler's cars will be developed in (Fiat's headquarters in) Turin, not (Chrysler's headquarters in) Auburn Hills," Robinet said.

As China's market grows, Edmonds.com Chief Executive Jeremy Anwyl said that the key to success for global automakers lies in "leveraging common platforms and tailoring them to local tastes."

He said that Volkswagen AG provides a "textbook example" of a company that uses a few common platforms to produce a number of different -- and different-looking -- vehicles.

"If you're not selling 5 million units a year, you're not going to be competitive," Anwyl said. "The focus will be on efficiency, but if you are not smart about how you leverage your platforms it won't work."

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