china auto market to "explode exponentially"

China auto market to "explode exponentially" in next ten years 13th July 2009

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A number of market observers predicted on Friday (10th July) that China's auto industry is set to embark on a considerable growth spurt in the next decade, Reuters reports.

New figures released by the China Association of Automobile Manufacturers last week revealed that Chinese passenger car sales increased by 47.7 per cent in June to 872,900 units.

The association now believes sales could pass 11 million this year, while a slump of 27.7 per cent to 859,847 vehicles was recorded in the US, which is regarded as a traditional powerhouse.

Mirko Mikelic, an Analyst at Fifth Third Bank, told the news provider: "The Chinese auto market is going to explode exponentially over the next five to ten years.

"They have an untapped consumer base that is constantly growing, so I don't think it would surprise most people that China is expected to surpass the United States in the next ten years."

A range of incentives and tax cuts introduced in Beijing earlier this year contributed to the increased sales performance but China also has another major advantage over the US.

While the US market is now largely saturated, China has 1.3 billion people - which accounts for a fifth of the world's population - with the potential for a much higher ownership ratio.

As Credit Suisse Analyst Hung Bin Toh wrote in a recent research report quoted by the news provider, car ownership in the country could increase fivefold to 148 cars per 1,000 residents by 2020.

According to IHS Global Insight Analyst Aaron Bragman, automakers should take note of the rise and adopt a more worldwide view when it comes to devising their production targets.

"China's rise emphasises the fact that the auto companies that are going to do well are the ones that are truly global," he told Reuters.

"If you don't have a global presence, you're going to miss out."

One company that appears to be riding the crest of the wave in China is Volkswagen, Europe's largest automaker, which revealed today that its first-half sales in the country were up by 22.7 per cent on a year-on-year basis.

In an emailed statement to the news provider, the firm announced that a record 652,222 units were sold between January and June, including 538,969 Volkswagen-branded vehicles.

"China is currently a spotlight in the international automotive market," Volkswagen China President Winfried Vahland said in the statement.

"The increase of our deliveries to customers has been in line with the market growth in China, which benefitted from the effectiveness and the success of the Chinese government's incentive automotive policy."

Sources:

China's rise to create truly global auto market (10/07/09)

UPDATE 1-Volkswagen H1 China-HK car sales up 22.7 pct yr/yr (13/07/09)