Page last updated at 07:52 GMT, Tuesday, 10 February 2009

China's car industry overtakes US

By Chris Hogg
BBC Shanghai Correspondent

Buick is marketed as a luxury brand in China
Buick is marketed as a luxury brand in China

New figures have shown that in December, for the first time ever, there have been more cars sold in China than the United States.

A total of 735,000 automobiles were sold in China last month, compared to 656,976 vehicles were sold in the US.

The reason, analysts say, is that the slump in sales in China has been less severe than the slump in the US - not exactly a cause for celebration for carmakers here.

But the truth is there are worse places to be in the car business than in China at the moment.

It's one of the few places in the world where if you visit a car showroom you'll meet a steady stream of customers.

American appeal

Car buyers are still attracted to American brands
Car buyers like Tang are still attracted to US brands

At lunchtime in one in Shanghai's Pudong district, Tang Liang, a gangly young man is being shown a large family car made by the US firm General Motors and its Chinese partner.

The salesman is assiduous, answering all his questions as Tang jumps in and out of the vehicle, clearly impressed by how it feels to sit in the driving seat.

"We're all quite tall in our family," he says. "Small cars aren't that comfortable."

So why is he interested in buying an American car? "I long for America," he smiles. "Its democracy. Its cars."

He's laughing, but he's not joking. He's impressed by the car.

Above him is a flag with an American eagle.

To those Chinese who can afford them US models are often more attractive than the cheaper, local alternatives, says Wu Ai Lian, the local sales manager.

Her branch sold nearly 1600 cars last year.

"Business isn't bad," she says. "GM has been number one in China for many years. People think their cars use a lot of fuel but we tell them they're safer. Nothing is more valuable than your life. American cars might use more fuel but they're good quality."

Major event

GM car dealership
Sales are still holding up, says Wu Ai Lian, manager at a GM dealership

The streets of Shanghai are crammed with cars.

The markets for cars in the bigger cities are well developed.

There are fourteen showrooms selling the same model Tang wants in Shanghai alone.

But across the country, in the smaller cities and in the countryside, it is very different.

Car industry analyst Yale Zhang points out that in the US there are on average 800 cars for every 1000 people.

Here in China the figure's a tiny fraction of that - just 20 per 1000 Chinese.

Mr Zhang says for most Chinese buyers, the purchase of the car is still a major event. "

"Over 80% are buying their first car," he says.

"It's not just a simple transportation tool as it is in the US or in Europe. Here it tells people your social status."

Fast-growing market

China has been regarded as the fastest-growing automobile market in the world, with sales growth of over 20% per year for three years.

But last year growth slipped back to 10% after a disappointing third and fourth quarters.

GM China boss Kevin Wale
GM hopes to grow its Chinese market strongly in the next few years

Nowhere is immune to the effects of the economic downturn.

This year sales in China are predicted to slow to just 5% - half of last year's figure.

Kevin Wale, the President of General Motors China, smiles as he admits that the months ahead are going to be "somewhat more challenging."

But he insists that those who've been in the car industry for a long time would recognise that any time you have a growth market is a "good year".

He's not surprised that China is challenging the US for the top spot in car sales worldwide, although he believes it will be "sometime between 5 to ten years" before China outsells the US on a regular basis.

However, higher sales numbers do not necessarily translate into higher sales value in cash terms.

"The value of those sales in the US is on average far higher than the value of those sales in China, so the revenue generated in the US market will be significantly larger than that generated in the China market for quite some time to come," he points out.

Rocky time

Car analyst Zale Yang thinks the next few months will be difficult for many of the smaller players in China's car industry.

"China has enjoyed this more than 20% growth for too long," he says, "and people in the industry have got too used to it."

"If it slows down to single digits, it will add a lot of difficulty for many smaller carmakers in China.

"We have very good reason to expect that by the end of this year or early 2010 we will see some of the smaller manufacturers leaving the industry."

Measures to help manufacturers and motorists have been introduced by the Chinese government in recent weeks.

Among them, the tax on vehicles under with smaller engines (less than 1.6 litres) has been halved to 5%.

And there are subsidies for those who want to exchange an old vehicle for a new one.

Some analysts believe that the stimulus package could boost sales by between 3% and 6% this year.

The government has also promised to provide 10 billion yuan (980m, $1.4bn) to help carmakers upgrade their technology and to develop alternative energy sources for cars and trucks.

But it acknowledges more help might be needed to support its car industry in the months to come

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