China is changing the global auto industry

The 2008 Beijing Auto Show (April 20-28) was in full swing last week, and numerous media outlets have been taking the opportunity to report on how China is changing the global landscape of the auto industry.

Cars are certainly changing China.  "J. D. Power & Associates calculates that four-fifths of all new cars sold in China are bought by people who have never bought a car before -- not even a used car," according to the New York Times.   "China’s explosive growth in first-time buyers is the driving force behind the country’s record car sales, up more than eightfold since 2000. It is the reason China just passed Japan to become the world’s second-largest car market, behind the United States."  What are they buying?  "The beneficiaries have been the joint ventures of multinationals that sell cars here that are designed overseas, like the Buick Excelle, Volkswagen Jetta and Toyota Camry."  The phenomenon is something of a surprise to industry analysts, most of whom had thought that low-cost domestic Chinese automakers would cut their teeth on first-time Chinese buyers, eventually developing cars that could compete on the international market. 

Instead, some of the most sought-after cars in China are the same ones that have represented prosperity in the U.S. in recent years.  The AP reports that "sales of luxury cars and SUVs expected to surge by 40-45 percent" in China this year alone.  Mercedes-Benz says "China is the second-biggest market for its S-class sedans, behind only the United States, and accounts for one-third of global Mercedes sales."  In the first quarter of this year, "Sales of R-class minivans jumped 110 percent while those of M-, G- and GL-class SUVs doubled."  Why are the Chinese snapping up low-mpg vehicles while global oil prices are reaching record levels?  "Beijing has tried to shield farmers and the urban poor from high oil prices by freezing pump prices for gasoline and diesel, keeping them among the world's lowest. That takes the sting out of filling up a gas guzzler," according to the AP.

General Motors is counting on China to help it recover from economic stress in the U.S. market.  According to the Flint Journal's Rick Haglund, "GM sold 322,115 Buicks in China last year, compared with just 185,791 in the United States, and, "unlikely as it may seem, engineers and designers in Detroit and Shanghai are working together to develop Buicks that will appeal to both Chinese and American consumers."  The new Buick Invicta, which will sell in the U.S. as the next Buick Lacrosse, premiered at Auto China 2008, popularly known as the Beijing Auto Show, this week to rave reviews.

Chinese automakers, in contrast, are looking to the U.S. market as their future.

Car and Driver today profiles "Chinese cars that might have what it takes to make it in the U.S."   None of the cars are scheduled for sale here yet, but American automotive writers are starting to consider whether they should be, and that's news.

The New Zealand Herald notes, however, that "like the Japanese and Korean car companies that went before them, Chinese firms are finding they have to win customers with cut-price deals before they can establish their names." Chinese automakers" sold 612,700 cars abroad last year, up nearly 80 percent" from the previous year, but those sales were "mostly in the developing world."