China's Car Sales
Rose 75% in 2003
By JANE LANHEE LEE
DOW JONES NEWSWIRES
SHANGHAI -- Aggressive price cuts and new-model launches helped China's car sales zoom ahead by more than 75% last year, and many in the industry expect another strong year ahead.
The China Association of Automobile Manufacturers Thursday said a record 1.97 million locally made passenger cars were sold last year. The steep rise followed a more than 50% jump during 2002, a growth rate that some car makers early last year had said would be hard to surpass. Counting the sales of imported cars, analysts said China exceeded the two million mark for passenger-car sales during 2003.
Sales of all types of locally made vehicles climbed 34% last year to 4.39 million, an association official said.
While few expect a repeat of 2003's performance, consultants and auto-industry officials are forecasting growth this year ranging from 25% to 50%. Sales could get an added boost from auto financing, which auto makers are expected to start offering during the second half.
"Given the culture of Chinese people who like to use their vehicles to show their wealth ... those who don't own a car yet are under peer pressure to buy," said Jian Sun, a principal at A.T. Kearney in Shanghai. "A lot of people who weren't originally even thinking of owning a car now are getting drivers licenses and seriously considering buying a car. That kind of momentum is still building up, and we don't see the peak yet."
Mr. Sun expects three million passenger cars to be sold this year, compared with the 2.5 million to 2.62 million forecast by the auto association this week.
According to the auto association, China set a record during December for monthly passenger-car sales, selling 227,348 locally made cars, more than double sales a year earlier. Total vehicle sales last month rose 58% from a year earlier to 456,451 units, it said.
But China's auto industry will face increasing competition as local and global car makers continue pouring billions of dollars into expanding production in China. Signs of oversupply are starting to appear in this booming market, with the inventory of older models building up and a reliance on price cuts to unload them eroding margins.
With car sales at record levels, the demand for much of the material used to make them has been climbing, pushing up prices for commodities such as steel and aluminum in the international market.
Important to survival, said Mr. Sun at A.T. Kearney, is to launch new models to avoid getting caught in price wars.
"The artificially high margin paradise is going to be over," he said. Mr. Sun is forecasting an average 8%-to-10% price cut this year, similar to last year's price reductions.
The biggest price cuts are likely to come on midrange to high-end cars, said Geoff Liu, a Beijing-based analyst at Automotive Resources Asia, an auto-industry-consulting firm.
"The low-end cars are already cheaper than the international market prices, so I don't expect to see any drastic cuts there," he said.
The most aggressive cuts last year came on midrange vehicles, according to Automotive Resources Asia. DaimlerChrysler AG's Beijing Jeep venture slashed the price on one version of its Cherokee model by 29%. Honda Motor Co. reduced the price of its Accord 2.4L by 13%, while Volkswagen AG came down 8% on the price of a standard Santana.
Mr. Sun said that as the auto market grows, the demand for low-end cars also will increase, boosting the sales of local companies able to produce the cheaper models and giving them a base to compete with foreign auto makers.
"Local companies will continue to be formidable players, and multinational auto companies shouldn't underestimate them and repeat the same mistake global manufacturers of home appliances or mobile phones made," he said.
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