China’s Automobile Sales to Slow Further in 2015

Dow Jones Newswires, January 12, 2015

by Colum Murphy

DETROIT–China’s auto industry faces a second straight year of weaker growth after a sharp 2014 slowdown, according to an industry association and analysts, as car makers continue to grapple with a cooling economy and rising inventories.

The China Association of Automobile Manufacturers said Monday that it expects passenger-vehicle sales to rise 8% to 21.3 million vehicles this year, compared with 9.9% growth in 2014. While that pace is stronger than current outlooks for Europe and the U.S., it still marks a sharp slowdown from a 16% gain in 2013 and even higher rates in some previous years.

Jochen Siebert, managing director of consulting firm JSC Automotive, said Western auto makers get such a large share of profits from China, slower gains “could be a slap in their face as the market begins to stall and regulators put an end to extraordinary profits in the aftermarket business.”

Consultant IHS Automotive estimates that in 2013 China contributed about 59% of net profit at Volkswagen AG, 45% at BMW AG and 37% at General Motors Co. The car makers don’t separately disclose China profits.

BMW said China accounts for between 20% and 30% of its automotive-segment earnings, which excludes finance arm earnings. Ian Robertson, the German luxury-car maker’s global sales and marketing chief, said in an interview at the Detroit auto show that he expects BMW sales in China to rise at a moderate single-digit-percentage rate this year. Mr. Robertson said growth also was shifting among car segments, for example, to smaller luxury cars from larger models.

Volvo Car Corp. Chief Executive Håkan Samuelsson said it is important not to “over exaggerate” the effects of China’s slowdown. “It’s going to be tougher,” he said. “But there is still solid growth,” he added.

Mr. Samuelsson said growth in China’s premium-car market in 2015 of between 5% and 10% would be “more realistic.” Volvo expects its growth would outperform, but wouldn’t be as high as when its sales rose about 35% in 2014.

Analysts expect China’s slowing growth will weigh on auto sales over the course of the year. China’s gross domestic product is widely expected to rise 7.3% in 2014, the weakest since 1990, and further deceleration is likely, said economists.

“Sales growth of sedans has almost stalled in recent months because buyers of sedans are very vulnerable to the economic situation,” said Yale Zhang, managing director of consulting firm Automotive Foresight. In 2014, China’s sedan sales rose only 3% from a year earlier to 12.4 million cars.

Dealers including Xie Zongwei agree. “People are asking for greater discounts. I feel it’s getting more difficult to sell cars,” said Mr. Xie, who sells Chevrolet, Hyundai and Geely vehicles in Hebei province.

The China auto association offers a somewhat brighter outlook for commercial vehicles, which are more dependent on the property market. Overall, the group expects total sales of passenger and commercial vehicles to rise 7% to 25.13 million this year, compared with 6.9% last year.

The industry group’s estimates are largely in line with those of analysts. Business Monitor International, a unit of information-services firm Fitch Group, expects growth in China’s passenger-car sales to slow to 7% this year. LMC Automotive forecasts a 9% rise for the passenger-car market and IHS Automotive forecasts an 8% rise.

In addition to the economic deceleration, demand for cars is taking a hit from the increasing number of cities placing restrictions on car sales to tackle their worsening air-pollution and traffic problems.

In December, the affluent southern city of Shenzhen joined other urban centers in curbing car purchases. The city now caps the number of new cars at 100,000 vehicles a year, less than half of an estimated 250,000 new vehicles sold in 2014.

Cities that might follow suit this year include Chengdu, Suzhou, Nanjing and Xian, said Ways Consulting Co., a Guangzhou-based consulting firm focused on the Chinese automotive industry. Each of the cities has had more than 100 autos per kilometer on the road, said the consultancy, adding that the four cities sold more than 1.2 million new cars in the first 10 months of 2014.

The association’s figures track vehicles shipped to dealers rather than sold to consumers, and rising inventories in dealer lots suggest more cars are going unsold.

Dealers for some foreign car brands, including BMW, have complained about what they called too-high sales targets and have demanded financial support from car makers to tide them through the slowdown.

Johan de Nysschen, president of General Motors’ Cadillac unit, said dealers for the brand in China hadn’t asked for such payments. “[But] we should anticipate it. Dealers for all franchises have taken note of this development,” he said.

The latest data from the China Automobile Dealers Association show that stockpiles at China’s more than 22,000 dealerships jumped to 55 days in November, up from 44 days in October and the highest level since June 2012.

Bill Russo, managing director of consulting firm Gao Feng Advisory, advised against car companies putting all of their eggs in the China basket. But he said there weren’t too many options. “If you’re a global auto maker, where else can you go for growth other than China?”

Rose Yu and Lilian Lin contributed to this article.

Write to Rose Yu at rose.yu@wsj.com

Click here to read the article at nasdaq.com

Internet Car Sales Click With Chinese Consumers

Ward’s Auto, January 5, 2015

Chinese automaker Geely will sell about 3,000 units online in China in 2014, five years after launching Internet sales on the country’s leading e-commerce site.

“The impact of Internet firms has been a major success for the company,” Geely spokesman Ashley Sutcliffe says.

Consumers have embraced e-commerce in China, the world’s most networked country. They are willing to buy just about anything online, including cars, and thus a new distribution model is being created.

But don’t count traditional dealerships out. They still play a crucial role.

“E-commerce in the automotive market is taking off,” says Paul Hu, chief marketing officer for Greater China and ASEAN at Volkswagen Group China. “In my personal opinion, online sales in the total car market in China will account for 10% in the near future.”

Shanghai Volkswagen, one of VW’s joint ventures in China, sells cars online in China though a handful of sites. Customers place orders online, but pick up the vehicle at a dealership.

“We do believe that there is some disruption to come to the distribution model, but it is not imminent,” says Kyle Dickie, CEO of Sewells Group, a dealership best-practices consultancy. “In China, there is an unusually high level of trust still placed in the sales consultant. In other words, consumers still want to interact face to face.”

Smartphones are the disruptive agent. By the end of 2014 China was to have more than 500 million smartphone users, says Wang Xiangrong, an official with China’s State Internet Information Office.

Those phones are kept busy buying stuff. Beijing-based iResearch predicts 2014 online retail sales in China will surge 45.8% to RMB2.76 trillion ($444 billion).

The explosion of online commerce in China is aided by e-commerce giants such as Alibaba, Tencent and Baidu. All are playing a role in changing the vehicle-distribution model in China.

Alibaba owns Tmall, the country’s leading e-commerce site. Formerly called Taobao, it is the site where Geely launched Internet sales. Last year, Alibaba partnered with another Chinese automaker, SAIC, to create an Internet-enabled car.

Though consumers can buy a Geely car online, dealers still close the deal. “Consumers can pay a deposit or pay for cars outright online, (but) the official sale will be handled by the nearest dealer,” says Sutcliffe.

That allows the dealer to sell additional products to the buyer and also gives the customer a point of contact for aftersales service, he says. Geely has some 800 dealerships in China.

Demise of Dealerships From Ride Sharing?

Online sales aren’t what will cut dealers out of the sales loop, argues Bill Russo, managing director at consultancy Gao Feng in Shanghai. Business-to-consumer connected-transportation applications might, however. These basically are ride-sharing applications but in China taxi drivers are used.

“Empowered with technology, consumers of mobility services are likely to make choices other than what the automakers and their dealers are offering today,” says Russo.

China’s Internet giants are deeply involved in mobility services.

Alibaba is an investor in Kuaidi Dache, a taxi application that sometimes tops 6 million daily orders. Tencent offers the taxi app Didi Dache, which claims more than 100 million registered users and says it processes more than 5.2 million orders daily.

The Baidu search engine has 500 million monthly mobile users and offers Baidu Maps and Total View, which uses satellites to show actual locations. It is a Chinese version of Google Maps’ Street View; Google is blocked in China.

The U.S. ride-sharing service Uber has just entered the China market and will use Baidu’s maps and Street View.

Internet-savvy young Chinese increasingly are becoming accustomed to using such services, says Russo. They “are increasingly likely to opt out of traditional car-ownership hassles,” he says.

Geely is one automaker that is playing both sides. It owns London Taxi, a famous brand in the U.K. A few months ago it introduced a fleet of the vehicles in Shanghai.

The iconic taxis – which in Shanghai are gold, rather than black – are larger than regular taxis and equipped to accommodate wheelchair users or others with special needs, says Sutcliffe. Right now they can only be summoned using a phone.

“There are plans for an app,” Sutcliffe adds.

China in 2025 and Implications for Automakers

Gao Feng Insights Paper, January 2015

As we know, China’s economy has been growing dramatically for more than two decades. China is now the world’s second largest economy. Recently, we see rising concerns over the impact of a deceleration in overall economic growth, especially on the automotive sector.

China’s economic growth is likely to continue over the next decade, driven by a mix of continued (albeit more selective) fixed-asset investment and growth in consumption. Continued investment in infrastructure to support a more than 60% urbanized population is anticipated. Household consumption levels will rise as a result of the growth in the population of middle-class wage earners and overall rising incomes. A broad transformation is expected to continue and will present an environment that is characterized by a long term and sustained shift towards a middle-income, consumption-based economy. This trend would lead to a profoundly different economic landscape.

We believe discontinuities in the political, social and economic landscape have the potential to reshape China dramatically in the next decade. While the outlook is positive, there will likely be discontinuities – some upward and some downward – along the way. We believe that the key to sustainable success for businesses in China will depend on their ability to anticipate those trends and challenges that are in the “blind spots” today – but which can create disruptive threats or discontinuous opportunities for those who are able to respond rapidly. In essence, an “early warning system” is needed which leverages unique insights that can be brought to bear on the question of how the market, the regulatory system, and business models may develop over the next decade in China.

In this analysis, we will apply such a thought process to anticipate plausible scenarios for the China auto industry in 2025.

Click here to view the full paper:

Bill Russo to Join Panel Discussion at Global Automotive Forum

Wuhan, China, October 16, 2014

TOPIC:

The Transformation of China’s Auto Dealers

Auto dealers in China thrive on new car sales and highly profitable repair services. What opportunities and challenges do dealers face with the growing number of vehicles on the road, increased competition, the internet, and the establishment of more independent repair shop chains?

  • Relationship between e-commerce through the internet and the current sales channels.
  • Transformation from a “commodity economy” to a “customer economy” by applying big data technology.
  • Standardization of the used car market.

Hu Bo, Chief Marketing Officer, Greater China and the ASEAN regional, Volkswagen

Liu Zhifeng, Executive Deputy General Manager of Beijing Hyundai, China Group ChinaChina

Pang Qinghua, Chairman of Pangda Group, China

Bill Russo, Managing Director with Gao Feng Advisory Company, China

 

Moderated by,

Ma Xiaowei, President of Iautos.cn, China

The panel will be held at 3:15pm in Qin Tai Hall at the East Lake International Conference Center