Chinese sales have been a backbone of General Motors’ (NYSE: GM) and Volkswagen’s earnings for several years. These firms have ridden their shares of the world’s largest car and light truck market to strong profit margins. All of the other global auto manufacturers have chased them on the assumption that market share in China is critical to financial success. Ford (NYSE: F), one of the companies that has played catch-up, admitted the value of the market in the People’s Republic may help it very little. One reason is Ford’s small share. The other is more ominous for all major car companies. The Chinese market is no longer growing much.
Ford’s management said the firm expects Chinese vehicle sales to rise “about 5%” in 2012, according to the Wall Street Journal. Most estimates are that the entire market in China may not increase much faster than that. And, if the economy slow down continues, the figure could be less.
Ford’s prediction means two things. It and rivals like Toyota (NYSE: TM), Honda (NYSE: HMC) and Nissan will not get most of whatever revenue improvement they might have this year and next from China. They will not get it from Europe or Japan either. Those economies are too weak to promote robust car sales improvements. That leaves the U.S. and South America as the remaining battle grounds. Each continues to show promise, but not nearly as much as was expect from China, based on forecasts just two years ago.
China has gone bust as a car market. Ford’s forecast is an early indicator of that. So is the slowdown in overall sales in China that began late last year. The world’s largest car companies will have to turn somewhere else to fuel rapid sales growth, and there are few other large places to turn.
Douglas A. McIntyre
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