Car Sales in China No Longer Auto Industry's Future

Douglas A. McIntyre

White-hot car sales in China have slowed considerably and no longer outpace the percentage rise in the United States by much. Auto sales in the People’s Republic were up by 11.2% in June, but production only rose 9.3%, according to the China Association of Automobile Manufacturers. The market is about to get much worse as air pollution trouble restricts the sale of cars in many large cities. China no longer holds its place as the most critical growth market in the world.

Reuters reported on China curbing auto sales:

Eight more cities in China, the world’s biggest auto market, are likely to announce policies restricting new vehicle purchases, an official at the automakers association said, as Beijing tries to control air pollution.

The news agency reported that the action could lower the nation sales growth pace by 2% from 2012 numbers.

China has struggled for several years with the problem of air pollution. A new study showed how acute the problem is. The data claims that air pollution has cut the life expectancy of people who live in northern China by 5.5 years.

If China continues to restrict auto sales in its largest cities, and there is reason to think it will not, slowing sales should batter the dreams of the world’s largest manufacturers. General Motors Co. (NYSE: GM) counts China as critical to sales and earnings. It is the largest manufacturer in the People’s Republic, followed closely by German behemoth Volkswagen. Several other global car companies have jockeyed for a place near the top. Many of these have announced sharp increases in their production on the mainland. It turns out that the size of these investments are likely a mistake.

China passed the United States as the top car market in the world four years ago, as the recession cut sales in America, and a thriving economy and incentives quickened those in the People’s Republic. That has changed recently. Most car makers who sell products in the United States have announced sales that are at or near five-year highs.

Without China, the industry will wobble as it tries to get earnings back to pre-global recession levels. Europe will not be of any help. As a matter of fact, for every car company that has operations in the European Union, these are a hindrance. And the Europe market may not recover for years.

The problems in China and Europe leave the South American market, and other emerging ones like India and Russia. The volume of sales in these regions are not large enough to make up for trouble in the larger countries. And India and Russia have substantial competition from local companies.

Car sales caused air pollution in China in part. And now pollution will curtail car sales.