Toyota, Nissan, VW hike China sales, capacity targets

Toyota Motor Corp, Volkswagen AG and Nissan Motor Co are raising production capacity and sales forecasts in China, betting vehicle demand will continue to grow even if the government scraps car-buying incentives.

Volkswagen, the biggest foreign carmaker in China, will invest 4.4 billion euros ($5.9 billion) in plants and new models by 2012, while Nissan aims to boost capacity in the nation almost 70 percent, the companies said at the Beijing Auto Show.

Toyota and Hyundai Motor Co are also building new factories in China, the world's largest vehicle market.

The automakers are competing for market share as Volkswagen estimated the growing wealth of China's 1.37 billion people may raise the nation's auto demand as much as 20 percent this year. Nissan predicted growth may slow next year as China has signaled it may end a tax break for small cars, and industry consultants JD Power & Associates and IHS Global Insight said carmakers risk building too many plants.

"China's motorization is reaching the masses," said Takanobu Ito, chief executive officer of Honda Motor Co, Japan's second-largest carmaker. "Even after the tax break ends, demand shouldn't drop very much."

China's vehicle sales growth this year will exceed Honda's original estimate of 10 percent, Ito said at the auto show. Xu Changming, a research director at China's State Information Center, said last week demand may rise about 17 percent to 16 million vehicles, down from 46 percent last year.

The government is likely to raise consumption tax to 10 percent next year for cars with engines no larger than 1.6 liters, after cutting the rate to 5 percent in 2009 and raising it to 7.5 percent this year, Xu said.

Last year's reduction, which helped Chinese auto demand surge past the United States for the first time, resulted in "unsustainable" growth, he said.

Even if the tax break is phased out, "there is a fear that amid all of this investment and stellar growth, the vehicle market could start to overheat", Paul Newton, a London-based auto analyst at IHS Global Insight, wrote in a research note. "The carmakers vying for market share in China may not want to admit it, but this risk is becoming a very real concern."

General Motors Co (GM), the largest automaker in China, plans to increase sales in the nation to 3 million vehicles by 2015 from an estimated 2 million this year. The company and its local partners sold 1.83 million units in China last year.

"Every time the government changes their policy, it will have some impact," Kevin Wale, president of Detroit-based GM's China business, said at the auto show. "But the underlying demand is increasing at a very fast rate."

At the moment, "we don't have enough cars and we can't build enough cars", he said.