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Car consumers turn cautious now
http://www.sina.com.cn 2004/12/06 12:31  Shanghai Daily

  First-time Chinese motorists - who in 2003 and early 2004 seemed to be elbowing one another aside in dealer showrooms in a mad dash to buy new Buicks, Audis and BMWs and other luxury models - suddenly turned cautious.

  Passenger car sales in China, which rose 76 percent to 2.1 million in 2003 after a 50 percent increase to 1.2 million in 2002, are forecast to make only a 20 percent gain this year. Next year's sales increase, according to JPMorgan Chase & Co, may be a bit less than 3 percent.

  Ten-month sales through October reached 1,955,649 units, up 19 percent over 2003, according to Automotive Resources Asia Ltd.

  Brilliance China Automotive Holdings Ltd, a Hong Kong-based maker of luxury cars in partnership with Bayerische Motoren Werke AG of Munich, Germany, posted a 29 percent drop in first-half 2004 profit. Brilliance's stock price is off more than 60 percent this year.

  "Some of the decline can be explained statistically," said Ashvin Chotai, a London-based automotive analyst for Global Insight Inc of Lexington, Massachusetts. "After two heady years, the rate had to come down."

  As of last summer, General Motors Corp, Volkswagen AG, Ford Motor Co and Toyota Motor Corp had announced plans to invest about US$10 billion in China. Some estimates put investment by all non-Chinese automakers at more than US$13 billion, with the goal of tripling capacity to 6 million sedans by 2010.

  Not surprisingly, Chotai and other analysts earlier this year warned that the torrent of planned investments could eventually create a glut.

  Chotai also noted that automakers have begun to cut vehicle prices to stimulate growth and may have unwittingly sparked a deflationary spiral. Instead of attracting buyers, the recent price concessions may have made some Chinese car buyers cautious, imparting the belief that even deeper price cuts may be in store.

  The president of Automotive Resources Asia Ltd, Shanghai-based Mike Dunne, thinks that the two- to three-year bulge in auto sales reflects a stampede by wealthy urban elites to own their first cars. "The Chinese middle class hasn't really started to buy yet in any great number," he said. "That might not happen for another three to five years."

  On November 12, Volkswagen, which is trying to cut costs to avoid firing workers in Germany, said it was cutting its planned investment in Chinese joint-venture operations by 22 percent, resulting in an investment of 2.1 billion euros (US$2.79 billion).

  Earlier in the year, almost every automaker in the world, responding to 2003 sales numbers, announced plans to spend at least a billion dollars each to expand capacity in China. Dunne calls them "the billionaires' club."

  Reality is that several of the automakers, like Ford, will reduce or slow their investments in response to a more normal pace of sales.

  China hasn't stopped being a richly promising automotive market, just one that will expand less explosively.

  (The author is a Bloomberg columnist. The views expressed are his own.)


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