Auto industry China for growth — again – Business Insider
Ford and GM are still making big bets on China
The Chinese are expected to buy a lot of cars in the future. REUTERS/Carlos Barria
The two most importantВ auto markets in the world are the US and China.
The US is the most competitive — if you can make it here, you can make it anywhere.
China is going toВ be the world’s thickest market; already, it’s surpassed the US, with more than twenty million in annual sales versus about seventeen million in North America.
In the past, big car makers were betting onВ China as their key play for the future. Aggressively bullish projections for theВ scale of yearly auto sales in the Middle Kingdom were coming in atВ forty million.
But in 2015, some concern set in, as China’s runaway growth rates suffered a pullback.
For several quarters, automakers like GM and Ford were routinely asked to address their China expectations and gauge whether they were anticipating too much.
Now the industry seems to think that China has stabilized and that solid growth for both mass-market and luxury sales will resume.
This couldn’t be happening at a better time because the US market is ultimately beginning to showcase some signs of plateauing at a sales rhythm of 16-17 million fresh vehicles per year.
For example, after running at a 17.5-million tempo for the very first few months of 2016, matching last year’s record, sales retreated by a notable one million units in March: the rhythm was 16.Five million, due largely to a pullback by GM on fleet sales, which could take almost half a million in low-margin deliveriesВ off the table by December.
The problem here us that when sales growth vanishes in the US, a downturn doesn’t generally go after. Usually, the market flattens, and this means that the automakers selling cars and trucks here begin to revert to bad habits. They raise incentives, cutting into their profits, and they contest against each other to maintain market share. This leads to a frittering away of marginsВ and a lack of bold spending on future models.
US auto sales may have peaked. Justin Sullivan/Getty
Basically, the industry pre-emptively hunkers down when times are good because no one wants to be caught off guard when the market slips from its plateau and indeed starts to decline.
Thus, the renewed China enthusiasm: If the US market weakens, China can make up for it and keep the industry on track for continued profitable quarters.
Naturally, the automakers wants to make as much money as possible in China, and that’s where the luxury market comes in.
Bloomberg’s Bruce Einhorn reported on the ambitions that both GM and Ford have for, respectively, their Cadillac and Lincoln brands:
Service—at-home test drives, live videoconferences with maintenance and repair staff—is a central lump of Ford’s plan to boost Lincoln sales in China. The brand entered the country in October two thousand fourteen with only three showrooms; by year end 2016, there will be 60.
Meantime, in January, General Motors opened a CadillacВ factory in Shanghai, its very first built solely to support theВ luxury brand in the country. The $1.Two billion plant has theВ capacity to produce as many as 160,000 Caddys a year.
Luxury brands generate higher profits than mass-market brands (often, the mass-market brands just break even on sales, but give automakers a chance to make money on leasing and loan financing). So it makes sense that GM and Ford would be aiming to grown these nameplates if strong growth resumes in China. But everyone else is thinking the same thing, and neither Cadillac nor Lincoln holds a major chunk of the Chinese luxury market (yet).
The China play had better pan out because if the US slows, there isn’t indeed anywhere else to look for growth. Europe is plane, Latin America is in recession, the Russian market is a catastrophe, and newer regions, such as African and the Middle East, are promising only modest short-term sales.
That’s why all eyes will once again be on China in 2016.
Auto industry China for growth — again – Business Insider
Ford and GM are still making big bets on China
The Chinese are expected to buy a lot of cars in the future. REUTERS/Carlos Barria
The two most importantВ auto markets in the world are the US and China.
The US is the most competitive — if you can make it here, you can make it anywhere.
China is going toВ be the world’s fattest market; already, it’s surpassed the US, with more than twenty million in annual sales versus about seventeen million in North America.
In the past, big car makers were betting onВ China as their key play for the future. Aggressively bullish projections for theВ scale of yearly auto sales in the Middle Kingdom were coming in atВ forty million.
But in 2015, some concern set in, as China’s runaway growth rates suffered a pullback.
For several quarters, automakers like GM and Ford were routinely asked to address their China expectations and gauge whether they were anticipating too much.
Now the industry seems to think that China has stabilized and that solid growth for both mass-market and luxury sales will resume.
This couldn’t be happening at a better time because the US market is eventually beginning to demonstrate some signs of plateauing at a sales tempo of 16-17 million fresh vehicles per year.
For example, after running at a 17.5-million rhythm for the very first few months of 2016, matching last year’s record, sales retreated by a notable one million units in March: the tempo was 16.Five million, due largely to a pullback by GM on fleet sales, which could take almost half a million in low-margin deliveriesВ off the table by December.
The problem here us that when sales growth vanishes in the US, a downturn doesn’t generally go after. Usually, the market flattens, and this means that the automakers selling cars and trucks here commence to revert to bad habits. They raise incentives, cutting into their profits, and they rival against each other to maintain market share. This leads to a frittering away of marginsВ and a lack of bold spending on future models.
US auto sales may have peaked. Justin Sullivan/Getty
Basically, the industry pre-emptively hunkers down when times are good because no one wants to be caught off guard when the market slips from its plateau and indeed starts to decline.
Thus, the renewed China enthusiasm: If the US market weakens, China can make up for it and keep the industry on track for continued profitable quarters.
Naturally, the automakers wants to make as much money as possible in China, and that’s where the luxury market comes in.
Bloomberg’s Bruce Einhorn reported on the ambitions that both GM and Ford have for, respectively, their Cadillac and Lincoln brands:
Service—at-home test drives, live videoconferences with maintenance and repair staff—is a central chunk of Ford’s plan to boost Lincoln sales in China. The brand entered the country in October two thousand fourteen with only three showrooms; by year end 2016, there will be 60.
Meantime, in January, General Motors opened a CadillacВ factory in Shanghai, its very first built solely to support theВ luxury brand in the country. The $1.Two billion plant has theВ capacity to produce as many as 160,000 Caddys a year.
Luxury brands generate higher profits than mass-market brands (often, the mass-market brands just break even on sales, but give automakers a chance to make money on leasing and loan financing). So it makes sense that GM and Ford would be aiming to grown these nameplates if strong growth resumes in China. But everyone else is thinking the same thing, and neither Cadillac nor Lincoln holds a major lump of the Chinese luxury market (yet).
The China play had better pan out because if the US slows, there isn’t indeed anywhere else to look for growth. Europe is vapid, Latin America is in recession, the Russian market is a catastrophe, and newer regions, such as African and the Middle East, are promising only modest short-term sales.
That’s why all eyes will once again be on China in 2016.