Will Smog Kill China Car Sales Growth?

Car companies sold 21.1 million cars and light trucks in China in 2015. The market has become the world’s largest by far, and a sales lifeline to global manufacturers. The growth of the market may be severely damaged by the spread of air pollution in the largest cities of the People’s Republic.

Extremely thick smog covered northern China yesterday. Some flights from Beijing were cancelled, and a number of roads were closed. The incident is one of an endless line of air pollution alerts in China’s largest cities which go back years. The problem is largely caused by coal burning in cities, factory pollution, and the hundreds of thousands of cars which drive in and out of the largest metro areas

Restriction of car traffic into cities when smog thickens is one of the primary ways the government deals with efforts at reduction of air pollution. From time to time, there are lotteries, one of every two cars which travels to a city cannot be driven on restricted days. The effects of this on car sales was mentioned as early as three years ago. Bloomberg reported in January 2014:

China’s main car association forecast that the world’s biggest automobile market will see slower growth this year as anti-pollution and austerity campaigns spread.

China, which in 2013 became the first country to see domestic sales surpass 20 million units a year, will see deliveries rise as much as 10 percent in 2014 after last year’s 14 percent growth, the state-backed China Association of Automobile Manufacturers said yesterday.

While China’s motorization has been a boon for foreign automakers — all the major ones saw record sales in the country in 2013 — pressure is building on the government to step in as pollution chokes residents and traffic congestion turns roads into parking lots.

Another wrinkle to the threat to car sales is the duration of the smog alerts. One recently lasted several days. The Guardian reported last month:

Beijing authorities have declared a five-day pollution “red alert”, shutting schools, ordering thousands of vehicles off the roads and telling residents to stay indoors, after the Chinese capital was enveloped by a shroud of toxic smog that is expected to linger until Wednesday.

The warning – the first since Beijing’s inaugural red alert in December last year – was officially implemented at 4.20pm on Friday as a nicotine-tinged haze rolled into the city.

All of the world’s global car companies need ongoing success in China to maintain their revenue growth, and likely their profits in most cases. First among U.S. manufacturers which face the problem is GM (NYSE: GM) which is the largest car company, along with joint ventures, in China, passed occasionally by VW.

China, which once held such great promise for the industry, has become one of its largest risks