Car makers gear up for a tougher China market

Sun Apr 22, 2012 12:10pm EDT
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BEIJING (Reuters) - China's massive car market may still be young, but the auto industry CEOs descending on Beijing this week will see first hand that it's also growing up fast.

The Beijing auto show starts on Monday at a time when China's auto market has begun softening after a decade of breakneck growth. The days when car sales could surge 46 percent in one year - as they did in 2009 - are gone, say many industry executives and analysts. Most see growth falling off to an average of 7-8 percent this decade.

Unfortunately for car makers, slower growth comes just as new entrants appear in the market and existing competitors add to their offerings.

"There are more brands and more products in China than ever before, and that's making market conditions suddenly more competitive and tough for everyone," said Li Shufu, chairman of Zhejiang Geely Holding Group Co. and Sweden's Volvo, which Geely acquired in 2010.

To be sure, there is plenty of growth left. Even conservative forecasts have China's auto market surging to 30 million vehicles a year by 2020, from last year's 18 million. Some think volume could even reach 40 million.

But the signs of a tougher market are clear.

Local Chinese auto makers like Chongqing Changan Automobile Co. and BYD Co. have seen their once-robust profitability erode significantly, thanks to the government's decision to scrap most of the auto purchase incentives it offered in the wake of the global economic crisis in 2008.

And some global auto makers, notably a Toyota Motor Corp. and Honda Motor Co., also have struggled to sustain high growth.

HARDER TO SELL   Continued...