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World Car Makers See China Market as Savior

April 18, 2013
The passenger car market is forecasted to grow an average of 8% annually through 2020, when sales will reach 22 million. However that is well down from a 24% average between 2005 and 2011.

SHANGHAI -- Global auto makers will flock to China's premier car show, affirming its importance as the world's largest vehicle market and the savior of an industry pummeled by European and U.S. economic woes.

The Shanghai auto show which opens on Sunday will showcase 1,300 models and is expected to attract more than 800,000 visitors over nine days, despite an outbreak of bird flu centered in China's commercial hub, organizers said.

China became the world's largest auto market in 2009, and last year sold just over 19 million vehicles, 15.5 million of them passenger cars.

It has become an anchor for car makers hit by slumps in other major markets as Europe battles a debt crisis and the United States struggles to put its recovery on a firm footing.

"China is saving the auto industry, in a certain sense. If you did not have China, what would be happening in the world -- nothing anymore," said Klaus Paur, global head of automotive for market research company Ipsos.

Though still expanding, China's previously explosive sales growth has moderated since 2010.

Consulting firm McKinsey forecasts the passenger car market to grow an average of 8% annually through 2020, when sales will reach 22 million, well down from a 24% average between 2005 and 2011.

The weaker growth comes amid a slowing of China's overall economy, the world's second largest, and as some Chinese cities put limits on car numbers because of concerns over congestion and pollution.

Sales of Japanese brands have suffered since last year as a political row over disputed islands sparked street protests across China and calls for boycotts, but other foreign companies have rushed to fill the gap.

China is among the world's most competitive auto markets with hundreds of models vying for attention of consumers, many of them first-time buyers, making it key for companies to build their brands.

"They're very finickety," said Namrita Chow, a Shanghai-based senior analyst for IHS Automotive, of the consumer mood. "It's definitely a change from 10 years ago when people were just excited that they had a big black sedan."

The passenger car market is becoming even more competitive as luxury car makers offer cheaper models and Chinese companies improve quality to challenge foreign firms, which account for over half the market.

"Compared to international brands, we are still in an early stage," said Zhu Jun, executive director for the technical centre of SAIC Motor, China's biggest domestic auto maker which will display more than a hundred cars at the show.

"But we are competing... We are learning fast," he said.

Market Segments

The SUV segment is among China's fastest growing, surging 43% year-on-year in the first quarter, despite environmental worries over big cars after smog blanketed the country early this year.

Electric cars and hybrids have fallen short of expectations despite a government target of having five million "new energy" vehicles on the streets by 2020, thanks to consumer indifference and a lack of charging infrastructure.

China has earned a reputation as "workshop of the world" with cheap labor and favorable investment policies that make it an attractive location for manufacturing.

The government is seeking to move up the value chain from inexpensive goods to more technologically advanced products such as cars, and build a homegrown auto industry from scratch.

Foreign companies must have local partners to manufacture in China, and the government hopes domestic firms will gain the technological know-how to build up successful "indigenous" brands.

Chinese state media took aim at foreign brands last month, accusing companies such as Volkswagen of quality problems, in what analysts saw as a sign of growing awareness of consumer rights.

Volkswagen subsequently recalled over 384,000 vehicles for gearbox defects, its biggest ever such move in China, after state television alleged a glitch caused acceleration problems and accidents.

But foreign brands continue to dominate the luxury car market, courting a new wealthy class in China created by sustained economic growth.

China is forecast to overtake the United States as the world's biggest market for "premium" cars costing up to $190,000 as early as 2016, when sales are expected to reach 2.25 million, according to another McKinsey study.

The country is also increasingly important to the rarefied ultra-luxury brands, like Rolls-Royce which will hold the Asian launch of its new Wraith model at the Shanghai auto show.

-Bill Savadovem, AFP

Copyright Agence France-Presse, 2013

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