The booming double-digit growth years of the Chinese car market (the world’s second largest) have for the immediate future come to an end, given the exponential character of growth. CAAM (China Association of Automobile Manufacturers) reported that by year end 2008 saw car sales rise to only an averaged 7.3%
This shouldn't be a surprise, given the macro-effects of sharply declined Shanghai and Shenzhen stock markets that took the shine off the economic stampede, resultant hesitant investment in CapEx, demise of wage-push inflation as labour markets eased and so a concomitant slowing in the 'gold-rush' mentality that continued to deflate house purchases & building. The Olympic Games effectively signalled the end of the party, and the Chinese consumer saw it coming.
With so much rivalry in China's domestic auto scene, it was the innate climate of negotiational flexibility that kept the car market heated previously and was the driver behind that maintained credible 7.3%. The full auto value-chain, from tier 2 suppliers to manufacturers to dealers have been locked in their own highly competitive intra-sector struggles to be the winners of the what everyone knows is a period of winners and losers - of consolidation....of strategy formulation and execution....of ultimately, jostling for position and future fortune.
As the economic slowdown takes effect (created by a downward spiral of deteriorated exports to and so reduced domestic consumption – the 'New China Syndrome') it is the psychological lull that PRC officials must combat to stave off the chance of truly recessionary times. But the impetus, and specifically socio-economic results, of the $589bn stimulus package will take time to feed through, and importantly this very initiative could possibly induce the national psyche into a far more somber mood; recognising wealth creation comes from the public purse and not productivity gain. This will create a PR challenge for 'The Chairman' Hu Jintao since the necessary stimulus action has overtones of yesteryear's planned economy, with a concern that the 'party machine behind the economy' might slip-back into 'command-control' mode; even if not obviously apparent.
And that question of exactly how much governmental intervention may be forthcoming will be of great concern to Chinese car-makers, suppliers, dealers and just as importantly to the plethora of smaller independent garage operators that service the nation's appetite. For many know the ideology set out for the future of the industry to reach the international benchmark as soon as viable, with 2012 being the end of the current industry re-orientation phase
Whilst the sector's structure is being discussed and massaged into shape behind closed doors, more evident has been Beijing's announcement of measures to buoy consumer demand such as further across the board short-term new vehicle purchase tax cuts carefully balanced against needed endemic policy changes such as support more energy-efficient vehicles - a new purchase and annual taxation threshold put in place on 01.09.08 for vehicles with engines of more than 3 litres cubic capacity.
Early '09 new year official media reports indicate that Beijing has set a target of 10 per cent growth in the Chinese car market in 2009 and would announce yet more measures to stimulate private and corporate / agancy sales. Smaller sedans (the mainstay passenger market variant) and 1.0-1.5T (Isuzu derived) generic Chinese pick-ups are in the frame as logical beneficiaries.
Although many VMs will have been analysing the road ahead, the respective product pushes by a 'new-hand' domestic VM and 'old-hand' JV-domestic automaker, illustrate the zeitgeist; electing to focus on these core markets.
Great Wall Motor Company has extended its forage into passenger cars, moving beyond its highly profitable original and ongoing truck and SUV origins and passed a more recent confrontation regards 'copy-cat-car' accusations alleged by FIAT. It has created its own compact sedan 'China Car' initially produced in comparatively minuscule numbers of 10,000 units or so. This cash-rich company has re-invested the liquidity hoard provided by its trucks to step-toe its way into a volume market, even if initially at small scale.
At the opposite end of the spectrum is SAIC-VW with its newly introduced Livida, a (Jetta-sized) China only car that marries the best of: a) ammortised engineering from the eponymous Golf IV platform to reduce BoM costs, b) Chinese cultural spin in its 'design DNA' as part of its marketing campaign and c) product association with its bigger (iconic) Santana and New Passat 'bigger brothers' - all contrived to ultimately maximise margins. Livida will undoubtedly set the standard all others (foreign and national) will have to meet, and in the process build upon VW's massive Chinese market brand strength in sedans as the relatively newly arrived Japanese continue to march over slipping Euro & US counterparts.
Thus, as of today, it will be those automakers who can now appeal to the emergent 'flight-to-safety' mentality of the private consumer, corporate fleet buyer and public-agency procurement department should prevail, and the core strengths of the aforementioned duo will come to the fore.
The resultant China Syndrome trend of 2009/10 is the creation of the 2 automotive gravity pulls stated:
1) shallow consumer pockets seeking 'safe-haven' brands and cars,
and
2) deep public purses seeking sizable domestic utility vehicle acquisitions
The capital expenditure programmes of those enterprises throughout the value-chain that foresaw the slow-down appearing over the horizon and acted early in 2007 will have been well expedited. And these new fractures will ultimately reform China's ever evolving auto-sector into a newer, leaner, clear-cut and more industry and consumer apparent 'shape' come the 2012 review. The chaos and the clutter is being cleared and 2009 will be a watershed period in doing so.
