China Overtakes the U.S. as World’s Largest Auto Market

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Chinese consumers purchased about 13 million light vehicles in 2009, according to the China Association of Automobile Manufacturers, the most ever. U.S. consumers purchased 10.4 million cars and light trucks in 2009, a level not seen in the U.S. since 1982.

General Motors benefitted most from this Chinese surge, selling 1.83 million vehicles in China in 2009 through its joint venture with China’s SAIC Motor Corp. GM also became the minority partner in that venture, selling 1% of the partnership to SAIC for $84.5 million.

Ford Motor Corporation (F) only recently began construction of a third plant in China. The plant is expected to cost $490 million and is scheduled for completion in 2012. Ford plans eventually to build 600,000 cars annually at the plant. Initially the plant will build 150,000 vehicles, now expected to be Ford’s new Focus model.

Chrysler was anticipating total sales in China for 2009 of about 16,000 vehicles, with an even smaller number forecast for 2010. Enough said about that.

What drove the Chinese market in 2009 were government incentives. The Chinese government cut the value-added tax in half for small cars, to 5%, and offered its own “cash for clunkers” program. For 2010, the tax rate will rise to 7.5%, and the cash incentives will disappear, and that is expected to dampen sales somewhat. Still, the Chinese market is nearly certain to continue outpacing the U.S. market for new cars.

Most car makers expect to improve sales in China in 2010 although not by as much as in 2009. An exception is China’s BYD, which is 10%-owned by Warren Buffett’s Berkshire Hathaway (BRKA). BYD which builds an electric/gas hybrid has upped its projections for sales from 700,000 units to 800,000 units in 2010. In 2009, the company sold 400,000 cars.

Nissan and Toyota (TM) both also expect 2010 sales growth but at a lower rate than 2009. Overall, China’s auto sales grew nearly 50% year-over-year in 2009, with 70% of those sales going to joint ventures with foreign makers or directly to imports. Chinese brands got just 30%.

Both GM and Ford are expecting to do well in China in 2010, and there is no reason to believe they won’t meet their goals. Chrysler isn’t expecting much, and the company should achieve their goal as well.


Article printed from InvestorPlace Media, https://investorplace.com/2010/01/china-becomes-worlds-largest-auto-market/.

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