China’s Car Market Slows to a Halt

China was supposed to be the salvation of the global auto manufacturing business as sales in the U.S. and Europe have slowed in the past half decade. Now, the China Association of Automobile Manufacturers have forecast that 2011 sales will only show a 5% increase over last year’s. Sales in 2010 were higher by more than 30% from 2009. The People’s Republic can no longer be counted on to bolster the revenue of the world’s multinational car and light truck companies.

The difficulty that foreign car firms have in China is additionally affected by the market shares of local companies, General Motors (NYSE: GM), and Volkswagen. GM sold 240,224 cars and light trucks in the People’s Republic last month. Most other car firms based in the U.S. and Europe do not sell even half of that. GM’s position is strong enough that it is unlikely to give way to competitors. That means Toyota (NYSE: TM), Ford (NYSE: F), Honda (NYSE: HMC), Nissan and luxury car manufacturers will struggle to keep even flat sales in the world’s most populous nation.

The problems in China turn attention back to the U.S. again. China’s unit sales this year will be 17 million. The figure in the U.S. will be only 12 million, but the American market currently grows as fast as the one in China. The recession that drove American sales below 10 million in 2008 is over. The U.S. is more important for the industry than it was two years ago.

The stocks of GM and Ford have come close to 52-week lows, based on worries that sales in the U.S. car markets will slow. There is also the specter that the production of Toyota and Honda cars, hurt by the Japan earthquake, will be back at 100% of capacity in the fall. That means they will be formidable competitors in the U.S. again. GM and Ford actually have a more difficult task. That is to offset anticipated slow growth in China.

Car companies will turn to expanding markets like Brazil and India to make up for lost sales momentum in other parts of the world. But these nations are not big enough to offset struggles in others.

China is no longer the hope of the global car industry, which leaves the sector nowhere to turn for the growth it expected just a year ago.

Douglas A. McIntyre

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