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CAR TECH
Foreign carmakers still driven to invest in China
By Tangi QUEMENER avec les bureaux de l'AFP
Paris (AFP) Sept 2, 2015


Foreign carmakers that raced into China to profit from what has become the world's biggest automobile market by volume have no intention of backing out despite slowing sales as the Chinese economy shifts down.

While maintaining their upbeat view of the market's potential in the medium-term, auto manufacturers have had to make some adjustments.

They have lowered their forecasts for sales growth in 2015 and some have expressed concern about a looming price war, and the shares of the industry's giants have been getting hammered on world markets.

Car sales, a traditional barometer of the economic climate, advanced in China by nearly 14 percent in 2013 and 6.9 percent in 2014.

This year the forecast is gloomy with analysts predicting a sales increase of around 3.0 percent as China's economic growth has slowed from 7.4 percent last year.

Economists put China's first-half growth rate at around 6.3 percent, lower than the official 7.0 percent, according to a recent survey by Bloomberg News.

"I don't think we will see again the growth rates that we saw in the past," said Yann Lacroix, an expert on the automobile sector at insurer Euler Hermes.

The world's top carmakers all profited in the Chinese boom years. In 2014 Volkswagen sold 36 percent of its global production in China, General Motors 35 percent, PSA Peugeot Citroen 25 percent, BMW 20 percent and Mercedes-maker Daimler 16 percent.

But the current slowdown "does not affect the outlook for the Chinese market on the 2020 horizon, which remains excellent", said Flavien Neuvy, auto market analyst for Cetelem.

He pointed to the sustained expansion of the middle class in a country where many households are not yet car owners.

- 'Achilles heel' -

The world's number one carmaker Toyota, which has seen around 11 percent of its global sales in China, says at this stage it has not experienced any jolts from the country's stalling economy.

The US giant says it continues "to expect strong results in China for the rest of the year", while German auto kings Volkswagen and BMW have revised lower their sales growth estimates for 2015.

"Over the years, the German automobile manufacturers pulled out ahead of the competition, but now conditions are changing for them too," said Ernst & Young expert Peter Fuss.

"(Their) strong dependence on the Chinese market could turn out to be an Achilles heel," he added.

Another aspect of the Chinese market is the spectre of a price war and the need to adapt to new market conditions, according to PSA boss Carlos Tavares.

"Very soon we are going to be confronted with a new price war. To protect our margins and our shares of the market in the context of a price war, we need to anticipate cost reductions," he said back in July.

Since the start of the year in the domestic market, the cheaper all-Chinese made cars have surpassed the vehicles made by joint ventures. China requires all foreign automakers to form joint ventures with local firms.

"If you want to attract new clients in China, you have to veer more towards 'low-cost' vehicles," said Lacroix.

After years of euphoria over booming China, the abrupt slowing in the market threatens to lead to overcapacity in the factories, an unknown situation up to now, analysts say.

"The level of growth will be less and that is going to redefine investment policies" in industrial infrastructure, said Meissa Tall, analyst at Kurt Salmon consultancy, while also noting "we're talking about slowing growth, not a recession."

Joint-venture factories turned out cars at 94.3 percent of capacity in the first quarter of this year compared with more than 107 percent in the same period a year earlier, according to a study by research firm Sanford C. Bernstein recently cited by the Wall Street Journal. Plants can surpass capacity by adding extra work shifts.

That has not discouraged carmakers who still want a stake in this huge market.

Renault, which has been somewhat absent from China up to now, is building a factory in the central city of Wuhan set to open next year. Its CEO Carlos Ghosn recently said that he was aiming for 3.5 percent of the market "as a first step".

The turbulence in the Chinese economy won't change that, said a source close to Renault, which remains "calm and confident" about the future of its models on China's roads.

bur-tq/boc/rl

EULER HERMES

VOLKSWAGEN

GENERAL MOTORS

PSA PEUGEOT CITROEN

BAYERISCHE MOTOREN WERKE AG

DAIMLER

TOYOTA MOTOR

RENAULT

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