CCTV News: Bill Russo Discusses China’s Auto Market and New Energy Vehicles

China Central Television China 24 Program,, April 25, 2016

 

China 24 04-26-2016 03:15 - CCTV News - CCTV.com English Safari, Today at 10.38.42 AM

 

A link to Bill Russo’s appearance on CCTV’s China 24 program.  Topics discussed included New Energy Vehicles, China’s auto market outlook, and vehicle exports.  Beijing Auto Show story begins at 8:25, and Mr. Russo’s appearance starts at 11:42.

Click here to watch the program at CCTV.com

 

 

Survival of the hugest: Chinese consumers seek safety in SUVs

AFP Newswires, April 25, 2016

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Maserati Levante sport-utility vehicles are offloaded in Hangzhou, eastern China’s Zhejiang province ©- (AFP/File)

Chinese drivers are rushing to buy sport-utility vehicles in an “arms race” for safety on the country’s hair-raising roads, analysts say, as SUV sales hit the gas despite a slowing economy.

SUV purchases in the world’s number one car market surged more than 50 percent in the first quarter of 2016 from a year earlier, while sedan sales fell 9.3 percent, according to industry data.

“The primary reason is a fairly primitive one,” says Robin Zhu, auto analyst at Sanford C. Bernstein in Hong Kong. “It’s about survival.

“It’s about people’s desire to feel safe on the roads. Because [SUVs] are bigger, and in low-speed collisions, from a consumer psychology point of view, you’d rather be the one in the SUV.”

Another 50 models new to the Chinese market will go into production in the country this year, according to consultancy IHS Automotive, many of them to be showcased at the Beijing Auto Show opening Monday.

China’s roads have a reputation for danger, with footage of horrific traffic accidents from the country’s ubiquitous surveillance cameras broadcast daily on television.

The World Health Organization estimates that more than a quarter of a million people are killed on the country’s roads every year — over four times official government statistics.

Death rates remain comparatively high because of inadequate rescue systems and poor treatment, according to a study by Chinese researchers published last year in medical journal The Lancet.

A businessman in an SUV in Beijing, who asked not to be named, told AFP he chose it “because it makes me feel safe when I drive”.

Bill Russo, automotive chief of advisory Gao Feng in Shanghai, said the appeal of an SUV comes from a feeling of “command” and the perception “you can deal with anything the road throws at you”.

Rising road rage on China’s congested streets has also made SUVs more popular, said Zhu. Traffic police handled more than 17 million cases of driver aggression last year, according to public security ministry statistics.

“There’s a bit of an arms race going on,” he explained.

– ‘Sedans on stilts’ –

Analysts say that while consumers in the US and other countries may be drawn by the image of SUVs going off-road in rough conditions, in China most of them are based on ordinary cars.

“The so-called SUVs today are sedans on stilts,” said Zhu.

More Chinese buyers have turned to SUVs as their fuel economy has improved and a drop in oil prices have made the vehicles more affordable to run.

The most popular models are “small, car-based crossover types”, said Russo, noting that “the vast majority” have engines smaller than 2.0 litres.

“They’re economical SUVs, they’re not big, gas-consuming environmentally unfriendly vehicles,” he said.

Chinese buyers are content with small engines in large bodies, said Michael Dunne, CEO and strategist at Dunne Automotive in Hong Kong.

Ten years ago educated urbanites preferred sedans because larger vehicles were associated with rural people and construction workers, he said. But in the last two years, SUVs have become “fashionable”.

“They’re not that interested in acceleration, passing, speed. They’re more interested in the look,” said Dunne.

But the boom may not last, executives warn. “Even if now the SUV is popular, in the future there will probably be a change,” said Toyota China head Hiroji Onishi, suggesting that minivans could see their appeal widen.

At the same time, while higher margins in the SUV segment have made the vehicles a driver of profits for foreign automakers, increasingly popular cheaper local models have made significant inroads in claiming market share.

Chinese companies such as Great Wall, Changan and Wuling have become national brands, Russo said, and in March six of the 10 top-selling SUVs were from Chinese firms.

According to association data, Chinese carmakers accounted for 60 percent of SUV sales in the first two months of the year, compared to only 20 percent of sedans.

The best-selling SUV in China, the Haval H6, costs from 88,000 yuan ($13,600) according to the company’s website. The best-selling foreign-brand SUV, the Volkswagen Tiguan, go for 200,000 yuan and up on major car sales portal Autohome.

Click here to read the original article

Carmakers seek inside edge in China

The Financial Times, April 24, 2016

 

Carmakers seek inside edge in China — FT Safari, Today at 8.56.04 AM

 

Carmakers are gearing up for a year of intense competition in China as the world’s largest auto market by sales faces both slowing growth and changing tastes in the form of electric cars and sports utility vehicles.

This time last year, global executives were bracing for a potential slowdown and a “new normal” of moderate sales growth to match a slowing mainland economy.

Fears became reality when the stock market rout last summer in China sent consumer sentiment into a nosedive. Sales dropped year on year from June to August, before a tax cut for small-engine vehicles in October propped up sales to finish 2015 with a growth rate of 4.7 per cent year-on-year.

After a bumpy run, global carmakers at the biennial Beijing International Automotive Exhibition, which opens on Monday, are keen to prove they are well positioned in China’s rapidly maturing market.

Shifting consumption patterns have made SUVs one of the country’s most promising growth segments, with sales surging by more than 50 per cent in the first quarter of 2016 compared with the same period last year, in contrast to sedan sales which declined 1 per cent.

That mirrors the growing popularity of gas-guzzling SUVs elsewhere in the world as fuel costs have followed the price of oil lower.

The shift has helped established a beachhead for local automakers, according to Bill Russo, a Shanghai-based consultant.

“For sedans, multinationals had the advantage but for utility vehicles seven out of the top 10 models are Chinese brands” thanks to their lower costs, he says. The trend is here to stay, he adds: “Utility is like a drug — once you have it, you’re hooked”.

The move has put pressure on foreign brands as local carmakers have also improved their quality significantly in recent years, according to analysts.

“Multinationals are in a dilemma over whether to cut costs to compete,” says Yale Zhang, a Shanghai-based consultant.

Domestic automakers are looking to expand on their newly privileged position. IHS Automotive predicts production of 50 new SUV models to be launched in China this year and says that 78 per cent of these will be domestic brands.

Global automakers are already revving up efforts to regain ground by bringing their most successful top-end models from home. Ford, for instance, will use the Beijing Expo to launch its F-150 Raptor in China, a popular pick-up truck in the US, as part of efforts to “inspire a generation of off-road enthusiasts,” says John Lawler, chief executive of Ford Motor China.

But bigger is not the only way carmakers hope to do better in the Chinese market: electric cars also remain a priority for any auto brand looking to get ahead.

While they are still only a small segment of the overall market, greater numbers of “new energy vehicles” are a strategic goal for Beijing even if the demand is not yet there.

The government is aiming for yearly sales to top 3m units by 2025, after growth of nearly 300 per cent in 2015 to 330,000.

Li Keqiang, China’s premier, said in February that the government would step up support for the electric vehicle industry by shifting funds away from subsidies for production to rewarding companies that come up with new technologies and hit sales targets.

“Everyone is under pressure to show their latest NEV [new energy vehicle] models” at the Beijing Expo, says Janet Lewis of Macquarie. But margins will remain low for electric vehicles for a few years to come, she adds. “Right now, selling NEVs is not a profitable proposition.”

A survey from McKinsey suggests that electric vehicles are gaining traction, helped by government policies that make it easier to get a licence plate for electric vehicles in China’s largest cities.

As in the SUV segment, foreign leaders still face local competition. LeEco, a Chinese tech company, became the latest to enter the space, last week announcing a new all-electric concept car christened LeSEE.

“These [technology] companies are almost on par with Silicon Valley,” says Clemens Wasner at EFS, a consultancy. “In a western country their entry into the market would not be economically viable, but in China it might be.”

Click here to read this at FT.com

Chinese firms accelerate in race toward driverless future

AFP Newswires, April 23, 2016

 

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Chinese Internet giant LeECO Holdings Ltd unveils its internet electric battery driverless concept car ‘LeSEE’,  during a launch event in Beijing, on April 20, 2016

 

Beijing: Chinese manufacturers and internet giants are in hot pursuit of their US counterparts in the race to design driverless cars, but the route to market is still littered with potholes.

While Google has been working on autonomous vehicles for at least six years, with the likes of BMW, Volvo and Toyota in its wake, more recently Chinese businesses have entered the race, from internet search giant Baidu to manufacturer Changan.

Last week, ahead of the Beijing Auto Show opening on Monday, two self-driving Changan cars made a mountainous 2,000 kilometre (1,200 mile) journey from Chongqing in the southwest to the capital in the country’s first long-distance autonomous vehicle test.

Another Chinese internet giant, LeECO, is also venturing into autonomous technologies, unveiling Wednesday in Beijing an electric car that can park itself and be summoned to its owner’s location via smartphone.

And late last year Baidu tested China’s first locally designed driverless vehicle, a modified BMW, with a 30 kilometre ride through the streets of Beijing.

Despite China’s relatively late entry to the field, analysts believe the country could become a key market for driverless vehicles thanks to a more favourable regulatory and consumer environment.

The Boston Consulting Group (BCG) forecasts that global sales of driverless cars will reach 12 million by 2035, with more than a quarter sold in China.

Vehicles which automatically adjust their routes in response to real-time traffic information could solve chronic gridlock in China’s major cities, BCG’s Xavier Mosquet told AFP.

“If they believe this would ease traffic, Chinese authorities will do all they can to promote the development of this technology and then its use,” he said.

Robot taxis

Public concerns over the safety of driverless cars are far lower than elsewhere, according to a survey by Roland Berger consultants in 2015, which found 96 per cent of Chinese would consider an autonomous vehicle for almost all everyday driving, compared with 58 per cent of Americans and Germans.

In a country notorious for accidents, the promise of better safety through autonomous technologies could also be appealing.

The ultimate prize, say analysts, will be when mass transport firms such as taxi-hailing giant Uber, or its Chinese rival Didi, can deploy huge fleets of robot taxis.

“The real payoff for truly driverless technology will come when cars on the road are no longer owned by people, but are owned by fleet management services,” said Bill Russo, managing director of the consultancy firm Gao Feng.

“That’s where you want to think about taking the driver out of the equation. Mobility on demand is hugely popular here.”

In the Roland Berger survey, 51 per cent of Chinese car owners said they would prefer to use robot taxis rather than buy a new vehicle themselves, compared with 26 per cent of Americans.

With a ready market, China may soon become the top location for companies to refine driverless technology.

Swedish manufacturer Volvo, owned by China’s Geely since 2010, this month announced plans to test drive up to 100 of its vehicles on Chinese roads this year.

Changan, a partner of Ford, is set to roll out commercial autonomous vehicles for motorways from 2018, while mass production of driverless city cars is projected to begin in 2025.

‘Does the car choose?’

Baidu, meanwhile, says it will launch self-driving buses by 2018, which will operate on fixed routes in select cities in China.

Like Google, the internet giant already owns detailed road maps and has experience in electronic security, and a company spokeswoman told AFP it had had “very positive feedback” from the government.

But analysts are more cautious, predicting slow-moving autonomous vehicles will not appear in towns until at least 2020.

Production costs were still too high to make a robot taxi fleet viable, BCG’s Mosquet said.

“There are still many questions to be resolved” before fully autonomous vehicles can be put into public use, said Jeremy Carlson, a senior analyst for IHS.

He pointed to “chaotic traffic situations” on roads shared with cyclists and pedestrians, and less-than-adequate infrastructure.

Technology will be the first to see solutions, he said, but that still left regulation and issues around liability and insurance to be addressed.

For some, there are moral dilemmas as well.

“If you have someone jumping out in front of an autonomous car, does the car have to choose between killing that person, or swerving and crashing and killing the passenger?” asked Robin Zhu, senior analyst at Sanford C. Bernstein.

“If your car could choose to kill you, would you get in it?”

Read more at: http://phys.org/news/2016-04-chinese-firms-driverless-future.html#jCp

The Race to Produce China’s Tesla

Bloomberg News, April 22, 2016

 
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William Li isn’t your typical, boundlessly optimistic Chinese tech entrepreneur. Yes, the founder of startup NextEV Inc. has big plans to disrupt China’s electric car market, the financial backing of venture capital powerhouses Sequoia Capital and Hillhouse Capital and considers Tesla Motors founder Elon Musk an inspiration.

That said, he rates his chance of succeeding in China’s fast-moving car market at a whopping 5 percent. He also thinks most of the new business models for electric cars being bandied about by tech companies will end up in the junk yard.

“There’s an exponential gulf between creating a concept car and mass production, and then to actually sell them,” Li said. “Tesla has broken a lot of new ground and inspired a raft of Internet companies to follow, but most have no idea what they’re facing.”

Such hard-nosed realism is probably wise. As global auto executives gather for the 2016 Beijing Auto Show, a torrent of money is pouring into the nation’s alternative energy vehicle market, which includes electric vehicles, plug-in hybrids and fuel-cell cars. In a country with some of the worst urban air pollution on the planet and a rapidly urbanizing populace, the market’s upside potential seems big to conventional car companies and tech startups jumping in.

The Chinese government is promoting what it considers a strategic industry with big subsidies for companies and consumers. It wants new energy vehicle sales to top 3 million units a year by 2025, versus 330,000 in 2015. Premier Li Keqiang in February urged local government and industry players to speed up construction of charging facilities to accommodate 5 million electric vehicles by 2020.

Right now, the electric car business is dominated by BYD Co., a Shenzhen-based automaker, 9-percent owned by Warren Buffett’s Berkshire Hathaway Inc., that has a 18 percent share of China’s new energy vehicle market. At the Beijing show, BYD will be touting its new entry-level sports-utility vehicle called The Yuan, as in the 13th-century Chinese dynasty, that starts from 209,800 yuan ($32,368) for the hybrid version.

Tesla is a player, too, in China, where it sells its Model S and Model X, though the Palo Alto, California-based electric carmaker would like to be a far bigger one. For the first three quarters of 2015, the company sold 3,025 vehicles in China, which compares to 11,477 units of delivery by BYD. The Chinese company, also sells its electrics in U.S., Germany and Japan and surpassed Tesla in May to become the world’s biggest maker of new energy vehicles last year.

The success of Tesla in the U.S. and the development of driver-less car technologies by Apple and Google are also attracting all manner of technology companies into the Chinese auto market, the world’s biggest. Some envision cars developing into “mobility service platforms,” in which passengers receive data and services in addition to being moved from point A to B.

That could play to the strengths of technology companies and the huge and growing Chinese auto market could be the perfect laboratory in which to experiment with new services and business models, according to Bill Russo, managing director at Shanghai-based auto consultant Gao Feng Advisory.

Russo compares today’s autos to the mobile phones of a decade ago, when apps started to gain in popularity. “As cars become mobility service platforms, the technology on board will become more sophisticated,” he says. Technology companies could contract out auto production to make vehicles, but then earn recurring revenue by providing car owners with data products and Internet services. “Apple makes money not just on the device, but on all the services that flow through it,” he said.

It’s definitely a vision in search of details, but plenty of technology companies are jumping into the fray. Electronics contract manufacturer Foxconn Technology, Internet service portal Tencent and China Harmony New Energy Auto have set up a joint venture to build alternative energy cars. The partnership is designed to leverage different strengths: Foxconn’s component supply chain, Tencent’s infotainment and telematics systems that could improve vehicle’s connectivity and Harmony Auto’s after-sales network for electric vehicles. In January, Daniel Kirchert, head of Infiniti in China, joined the alliance.

Chinese tech billionaire Jia Yueting also has automotive ambitions. The chairman and founder of Le Holdings Co., which makes Web-enabled televisions and smartphones and offers cloud and e-commerce services, is a major investor in Los Angeles-based Faraday Future, which is building a 900-acre factory near Las Vegas, Nevada. LeEco, which has developed its own electric vehicles, is preparing to apply for a production license in China and also plans to manufacture its cars overseas.

Given all the new entrants, it is easy to understand why NextEV founder Li is wary of the competition, even with financial backers like Sequoia. Li has hired former Cisco Systems Inc. Chief Technology Officer Padmasree Warrior to lead development and U.S. operations and has inked a deal to outsource production to Anhui Jianghuai Automobile Co.

“They’re realistic, they’re seasoned, smart people with a lot of money and they’re unafraid of the challenge,” Michael Dunne, head of strategy and investment advisory firm Dunne Automotive Ltd., said of NextEV. “In fact, they seem to be embracing it.”

Li’s early life didn’t fit the profile of a tech entrepreneur. He spent his early years herding cattle in a mountain village in Anhui province, where he grew up with his grandparents. A talented student, he left the rural China to attend the prestigious Peking University, where he earned a degree in social sciences while supporting himself with part-time work like selling office supplies to Apple Inc.

Before starting NextEV, Li co-founded and built Bitauto Holdings Ltd. into the country’s biggest provider of online car pricing data for dealers. The company went public in New York in 2010. Li and Bitauto have invested in more than 40 companies in China including used-car business, financing services and car-sharing platform such as Didapinche.

Li says NextEV is an opportunity to rethink the electric car as not just a transportation vehicle but as a digital platform.

“Traditional auto manufacturers treat the car as 95 percent transportation tool,” Li said. “Tesla’s cars have perhaps 20 percent to 30 percent content that are not related to transportation,” he said referring to such things as mobile connectivity and touchscreens that access car maintenance services.  “My aim is to boost that to more than 50 percent.”

NextEV has produced an electric Formula E series racer, but hasn’t yet disclosed its plans for launching an electric car aimed at the consumer market. Meantime, the race is engaged by a gaggle of tech companies to prove they can be players in Chinese autos.

Click here to read the article at www.bloomberg.com

Bill Russo Hosts “Building a Disruption-Ready Organization” Event

Shanghai, China, March 31, 2016

Building a Disruption-Ready Organization

2016 Russell Reynolds Associates Auto Show Event

The traditional automotive industry, where technology innovation has primarily been focused on powertrain and safety systems, must now contend with new forms of mobility services that are revolutionizing mobility needs.  The conventional hardware-centric business model is being superseded by an emerging connected, on-demand, and personalized mobility services business model.  Many Russell Reynolds Associates’ clients are top industry players contending intersection of the Automotive and Internet industries where innovations is rapidly shaping the future of mobility.

This event was a collaboration between Russell Reynolds Associates and  Gao Feng Advisory Company (www.gaofengadv.com), a pre-eminent strategy and management consulting firm with roots in China.  Gao Feng has been helping clients solve their toughest business and management issues — issues that arise in the current fast-changing, complicated and ambiguous operating environment. The topic of this session is one of the most challenging issues facing the automotive industry, and China is rapidly becoming the incubator for disruptive business model innovations focused on mobility.  However, most firms are at a loss about where to find the best talent to drive their disruptive ideas on innovation and transformation.

The discussion was focused on the future of mobility in China, and the implications for leaders who must cope with the disruptions in the China market.  The event was held on 31 March 2016 in Shanghai China.  This event series is designed to bring senior executive representatives of the China Automotive industry together to hear from and interact directly with the leaders in disruptive innovation and mobility transformation.

Topics for discussion:

  • Defining the disruption in the China context – What are the disruptive trends in today’s mobility world?
  • Helicopter view of the competitive ecosystem – What is the chaotic landscape look like and how will it evolve?
  • How should incumbents respond? Disrupting or being disrupted? – What are the internal capabilities to build? How to work with local start-ups?
  • China for the world – Will China lead to world’s development and innovation in Connected Mobility?

 

Mr. John Larsen, Director, Smart Mobility, Ford Motor Company Asia Pacific

Dr. Markus Seidel, Vice President, BMW Group Technology Office China

Ms. Christina Xie, Senior Director, Strategy Department, Didi Chuxing

Mr. Jack Cheng, Co-Founder, Executive VP, NextEV

Mr. Kevin Harris, Co-Founder, Russell Reynolds Associates

 

Moderated by:

Mr. Bill Russo, Managing Director and Automotive Practice Leader, Gao Feng Advisory Company

Building a Disruption Ready Organization vF Microsoft PowerPoint, Today at 10.29.32 AM

CCTV News Interview on Driverless Cars with Bill Russo

China Central Television’s China 24 Program, April 12, 2016

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On-air interview on the regulatory and infrastructural challenges associated with autonomous driving.

Lead-in story begins at 25:55 and Bill Russo comments start at 30:10

Questions discussed:

Q1:
As driverless cars getting more and more popular in China, is it really a safe and reliable way to travel around? Without drivers being in charge, the vehicles are controlled by an intelligent transportation control network. People may ask: what will happen if the network breaks down?

Q2:
From the perspectives of legal regulation and framework, to reach the ideal goal of autonomous driving in the future, what can we do about it?

View the program: China 24 04/12/2016 03:15 – CCTV News – CCTV.com English

Bill Russo Hosts Panel Discussion on Urbanization and Mobility

Beijing, China, March 30, 2016

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The Future Perfect Series: Urbanization and Mobility

Urbanization. A Growing Middle Class. Pollution. Grid Lock. How are these factors shaping mobility in China? What solutions are being developed to ease mobility in China? How do you see mobility impacting and shaping lives today and in the future?

Beijing Bookworm, in cooperation with Ford Motor Company, invites you to participate in a discussion with experts from across industries on the future of mobility in China and beyond. It will be an evening of learning, discussion and idea sharing.

Topics for discussion:

  • China’s rapid urbanization and innovative urban mobility solutions for Chinese megacities
  • China’s growing new middle class and new white space of urban mobility
  • China’s ambitions for a sustainable future

Mr. John Larsen, Mobility Director for Ford Motor Company in Asia Pacific

Dr. Hai Jiang, Associate Professor of Industrial Engineering at Tsinghua University

Dr. Kevin Mo, Managing Director of Climate and Sustainable Urbanization at The Paulson Institute.

Moderated by:

Mr. Bill Russo, Managing Director, Gao Feng Advisory Company

Click here to view a video recording of the panel discussion

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Automakers Expanding in China May Soon Face Weakening Demand

The New York Times, March 28, 2016

by Keith Bradsher

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A Cadillac exhibited under water with goldfish in Guangzhou, China. Automakers have pinned their hopes on China, but its economy is cooling. CreditZhong Zhi/Getty Images 

 

SHANGHAI — The new $1.3 billion Cadillac factory on the outskirts of Shanghai is a shrine to modern manufacturing, the kind of facility that automakers all over the world dream of building but can seldom afford.

Hundreds of robots bend, arch and twist to assemble the body of Cadillac’s new flagship CT6. Lasers seal the car’s lightweight aluminum exterior using techniques that the carmaker, General Motors, has only just introduced in the United States. Yardlong, bright yellow robots like mechanical Alaskan huskies tow five-foot-tall carts of auto parts to the assembly line.

“It’s more along the lines of aircraft technology than traditional, spot-welded steel bodies,” said Paul Buetow, G.M.’s head of manufacturing in China, as he strode along the assembly line.

The factory is part of an aggressive expansion by automakers in China, the world’s largest market for new cars and the industry’s brightest hope for the last 15 years. But the country’s economy is now cooling, which could leave carmakers with too many factories and not enough buyers.

G.M. will open a second, $1 billion factory in Wuhan next year. G.M.’s main rival in the Chinese market, Volkswagen, plans to open large assembly plants next year alongside its existing factories in the cities of Foshan, Ningbo and Yizheng and build one in Qingdao by 2018. Hyundai plans to complete a factory south of Beijing by October and another in Chongqing next year, while Chinese automakers like Great Wall and Changan are aggressively adding capacity.

The research firm Sanford Bernstein estimates that auto manufacturing capacity in China will rise 22 percent over the next two years, bringing it to 28.8 million cars, minivans and sport utility vehicles annually. That is almost equal to the American and European markets combined, and greater than even the most optimistic forecasts: that sales in China will reach about 25 million next year.

Automakers are expanding at a time when China’s economic growth has slowed to its lowest level in more than a quarter-century. China is closing coal mines across the country and plans to shutter steel mills. Exports are falling. Many Chinese cities are dotted with empty apartment buildings. Worried about pollution and traffic jams, China’s wealthiest metropolises have begun limiting the number of new cars that may be registered.

On the surface, auto sales in China seem strong. More Chinese families can afford cars and are flocking to showrooms. Sales of cars, minivans and sport utility vehicles jumped 8 percent last year from 2014.

The buyers are not just China’s college-educated, white-collar elite, but also the beneficiaries of the country’s roughly eightfold growth in blue-collar wages in the last dozen years. Zhou Genkou, a burly truck driver, recently waited in a Volkswagen dealership to pay $12,300 for a new white Santana sedan. He explained that he could not tolerate life without a car.

“It’s so that we don’t have to walk,” he said.

But there are signs that China’s yearslong auto boom is easing.

After car sales fell three months in a row, the Chinese government decided last September to halve the sales tax on cars with engines of 1.6 liters or less, to 5 percent through the end of 2016. The main beneficiaries have been domestic Chinese automakers, mostly affiliated with municipal or provincial governments, that churn out cheap subcompacts with small engines.

A similar tax reduction produced strong sales in 2009 and 2010. But it mainly encouraged consumers to buy sooner. When the tax cut expired, sales essentially leveled off for the next two years.

With the current tax reduction scheduled to end, “2017 will be a very difficult year for the auto industry, probably no growth,” said Yale Zhang, the managing director of Automotive Foresight, a Shanghai consulting firm.

Multinationals are focusing more on higher-profit segments that are growing without help from such incentives. But they are also finishing up a factory-building spree that started three years ago, when the economy was healthier.

“We see China moving to a pace of what I would call moderate growth,” said Matthew Tsien, the G.M. executive vice president who oversees the company’s China business.

Volkswagen forecasts that China’s auto market will grow slightly faster than the overall economy this year and slightly slower than the overall economy for the rest of the decade. G.M. is forecasting that the market will grow a little less than 5 percent a year through the end of the decade, the equivalent of adding the entire auto market of Japan, or five Australias.

Both automakers are planning to meet much of that growth with factories they have already commissioned or will soon finish. But if the economy weakens significantly, the industry could get stuck with a large amount of excess capacity.

“Are manufacturers going to keep the rose-colored glasses or get real? Most of the multinationals are going to get real and slow down the new capacity,” said Bill Russo, former chief executive of Chrysler China and now a consultant. “I’m not sure about the local manufacturers. They have a ‘Field of Dreams’ and ‘build it and they will come’ mentality.”

Chinese auto industry leaders shrug off such concerns. “They see the small-car market as having a lot of potential,” said Cui Dongshu, the secretary general of the China Passenger Car Association.

The Chinese economy needs continued strength in the auto market. The government wants to shift to a new, more sustainable model for growth based on consumer spending.

Since 2009, China has depended heavily on a loan-fed surge in construction of ever more highways, rail lines, factories and other investments. But that has produced a mountain of debt, particularly at state-owned enterprises.

Strong auto sales helped China attain a little-noticed milestone in recent months. Overall retail sales of consumer goods in China surpassed such sales in the United States, according to official data.

If sales do slow sharply, the question is whether multinationals and domestic automakers will try to start exporting more from their Chinese factories. The facilities are among the most advanced in the world, not least because they are also the newest.

G.M. and other automakers could in theory try to export more cars to the United States, which is also a relatively healthy market. One potential obstacle, however, is that China’s surplus capacity is mainly in subcompact cars, for which Americans have little appetite.

G.M. is already preparing to start shipping a new car-based sport utility vehicle, the Buick Envision, from China to the United States, from a factory in northeastern China. The arrival of the Envision, which is being built only in China, Buick’s biggest market by far, will be the mass market debut of Chinese-built cars in Big Three showrooms in the United States.

The preferences of Chinese consumers tend to be different from those of American buyers. Chinese customers, for example, are highly prone to complain if fabrics and other materials in a car’s interior do not smell quite right, according to surveys by J. D. Power & Associates. Many in the auto industry have said they will be watching how American buyers respond to Chinese-built Envisions.

“So will we,” said Mr. Buetow of G.M.