SHANGHAI, Nov 16 (AFP) - Foreign carmakers are ignoring signs that China's
vehicle market may be slowing with manufacturers failing to gain market share on
sliding sales, experts say.
"Manufacturers have misjudged market demand," said Jia Xinguang, chief
analyst at the China National Automotive Industry Consulting and Development.
"It is likely that growth in the next few years will slow down, given the
fact that oversupply is serious."
John Bonnell, a partner at auto consultancy Automotive Resources Asia
echoed that sentiment.
"Many China watchers believe the market will continue humming along until
2008, then slow down, but my gut feeling is that the market will slow down next
year."
Analysts are particularly worried that the size of China's middle-class is
considerably smaller than marketers' estimates, with current sales really driven
by a much smaller, wealthy urban elite.
"Auto companies have an over-optimistic perception about China's middle
class," Jia said.
Car sales soared 69 pct year-on-year in the first nine months to 1.454
mln units, after 55 pct growth last year. The sales, said Jia, were
"driven by a relatively lightweight group of wealthy citizens."
Unbridled production has led to fast rising inventories, which in turn has
set off price wars, a strategy that will catch up with automakers sooner rather
than later, analysts said.
Further, they are under the illusion that China is an indefatigable market,
and are setting unreachable sales targets, they said.
The China Association of Automobile Manufacturers calculates that unsold
car inventories were running at 80,000 units by the end of September and the
figures are likely underestimated by 25 pct.
"The actual number can only be higher," Jia said, possibly more than
100,000.
Despite overproduction fears, the competition remains fierce and casualties
are expected.
Fiat may not be ready to pack its bags just yet but Italy's flagship
carmaker may become China's first foreign casualty, since Peugeot pulled out of
the market in 1997 amid flagging sales. It announced its re-entry plan in late
2002.
"Fiat has so few models here, and unfortunately they all fall in the most
heavily over-supplied sector," Jia said.
The embattled group, which is already struggling to return to profitability
as it overhauls operations, saw its China sales slump as its four China
subcompact brands fell to 2,579 units in September from 3,297 a year earlier.
Fiat has said it will battle on in China, likely because without a sizeable
piece of a market predicted to be bigger than the United States in 20 years,
the company will cease to exist.
The market's potential is keeping another looser going, France's Renault.
Its joint venture in central Hubei province, Sanjiang Renault Automobile
Company, has the capacity to make 40,000 buses a year, but has turned out just
5,000 units since the plant opened in 1994.
Yet in an interview on radio Europe 1, Renault's chief executive Louis
Schweitzer said the firm would be building cars in China by 2010, and would
announce its China expansion strategy in spring 2004.
Renault, like others, is betting that China's market is only going to
continue to boom, and with China market leaders such as Germany's Volkswagen
continuing to post phenomenal growth rates, the frenzied pace of investment is
unlikely to stop.
"Oversupply is a long-term trend, but the fact is the Chinese auto market
looks good in the future," said Huang Anle, an analyst at Beijing Tianxiang
Investment Consulting
"International giants will continue to compete to win a piece of the pie in
this market because of its (potential) for high profitability, while business
remains depressed in other major countries' markets."
US giants General Motors Corp and the Ford Motor Co announced last
week they had signed agreements with their joint venture partners in China to
export vehicles between now and 2006 in deals worth a combined value of 1.3
bln usd.
Earlier, General Motors Corp also said it would expand its joint ventures
here to boost production capacity by at least 50 pct to 766,000 units a
year by the end of 2006.
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