(MENAFN- Gulf Times) Foreign automakers continue to plough money into factories in China, the world's largest car market, even as the biggest economic slowdown in a quarter of a century crimps sales growth.
Market leaders Volkswagen and General Motors show no sign of letting up on their planned investments, while Toyota Motor and Ford Motor are also pursuing new China expansion plans.
That's in spite of the economic slowdown further depressing the car market in January-March, when sales grew only 3.9%, compared to 9.2% a year ago and way below the 7% growth that the China Association of Automobile Manufacturers (CAAM) predicts for this year. "It's still one of the markets with the highest growth in the world so we're not disappointed in this," Carlos Ghosn, CEO of both Nissan Motor and Renault, said at the Shanghai autoshow yesterday. "We are investing in China and we are going to continue investing in China."
Foreign automakers, many of which will unveil new products for China at this week's Shanghai show, including Ford's redesigned Taurus sedan, aren't fretting over the first quarter slowdown. But if the fallout from the broader economic slowdown bleeds into the rest of the year, global automakers may need to reconsider their China expansion plans, said James Chao, Asia chief of IHS Automotive.
A handful of foreign automakers are still outperforming the market, with Ford, for example, posting 9% sales growth in the first quarter.
"We're very conscious that part of what we do is we match demand with supply. We deal with reality, and if the reality tells us to slow down production, we'll slow down production," Ford's executive chairman Bill Ford told Reuters yesterday, noting that growth in China was still "quite robust".
IHS's Chao added the market was still divided into two segments, with domestic manufacturers hovering around 60% capacity and the international joint ventures at 80%-85%.
Anthony Lau, Shanghai-based research director for consultancy TNS Sinotrust, said even strong single-digit growth in car sales in China is much better than in markets elsewhere.
China accounted for more than half the total industry spending on new or expanded capacity last year, with plant investments worth $12.7bn, according to an annual Canadian study of automakers' outlays. Foreign automakers are likely to hoover up more idle capacity from smaller domestic firms, said Chao at IHS, as Ford did in acquiring a factory from Harbin Hafei Automobile that will add 200,000 vehicle per year capacity when upgrades are finished in 2016. That follows Ford's launch last month of a new factory in eastern China's Hangzhou, with annual capacity for 250,000 vehicles.
Even Toyota, whose first quarter sales slipped 0.1%, is ending a years-long expansion freeze, spending $440mn to add a new facility and a third line at a factory in Guangzhou, which could start production in 2017 with capacity to make about 100,000 cars a year.
Volkswagen is targeting China capacity of 5mn vehicles a year by 2019, up from 3.5mn in 2014, as part of a ‚¬22bn ($23.3bn) investment push, a company spokeswoman said, and GM has its sights on hitting that 5mn number a year earlier. By the time these expansions come on-line, the years of breakneck double-digit growth will likely be long gone: economists predict 7% GDP growth this year and a further notching down to 6.8% in 2016.
Meanwhile, Kia Motors released its K9 premium sedan in China yesterday, kicking off its journey upmarket with a model whose sales have been paltry both in the US and at home in South Korea. Kia and sister Hyundai Motor are banking on the world's biggest auto market to boost sales of high-end cars, which garner fatter profit margins and can raise the profile of models up and down the brand. But Kia € China's third-ranked passenger car maker when paired with Hyundai € is introducing its K9 during a period of sluggish growth in the local auto market, in an economy heading for its slowest rate of expansion in a quarter of a century.
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