World car makers ignore overheating signs in China's auto market
SHANGHAI, : Despite warnings that China's auto sector is set to overheat like a broken radiator, foreign car makers are showing no let up in their determination to push further into the world's hottest market.
US giants General Motors Corp. and the Ford Motor Company announced last week they had signed agreements with their joint venture partners in China to export vehicles between now and 2006 in deals worth a combined value of 1.3 billion dollars.
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Earlier, General Motors Corp also said it would expand its joint ventures here to boost production capacity by at least 50 percent to 766,000 units a year by the end of 2006.
Experts say companies are ignoring signs that the world's fourth largest and fastest growing vehicle market may be slowing, with many manufacturers failing to penetrate and gain market share on sliding sales.
"Manufacturers have misjudged market demand," said Jia Xinguang, chief analyst at the China National Automotive Industry Consulting and Development.
"It is likely that growth in the next few years will slow down, given the fact that oversupply is serious."
John Bonnell, a partner at auto consultancy Automotive Resources Asia echoed that sentiment.
"Many China watchers believe the market will continue humming along until 2008, then slow down, but my gut feeling is that the market will slow down next year."
Analysts are particularly worried that the size of China's middle-class -- a Holy Grail-like demographic for the auto industry -- is considerably smaller than marketers' estimates, with current sales really driven by a much smaller, wealthy urban elite.
"Auto companies have an over-optimistic perception about China's middle class," Jia said.
Car sales soared 69 percent year-on-year in the first nine months to 1.454 million units, after 55 percent growth last year. The sales, said Jia, were "driven by a relatively lightweight group of wealthy citizens."
Unbridled production has led to fast rising inventories, which in turn has set off price wars, a strategy that will catch up with automakers sooner rather than later, analysts said.
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