2010 Auto Sales, and why China will remain the biggest car market

In 2010, China’s auto sales are expected to have hit 17.3 million units, up 33% from 2009, the year it overtook (ho, ho) the USA as the largest auto market in the world, according to J.D.Power and Associates estimates. This compares with a 9% increase to 11.5 million new vehicles in the US last year, which was still the second worst year for auto sales since 1982; only 2009 was worse, with 10.6 million cars and light trucks sold, compared with 13 million in China.  While individual US companies enjoyed a good year, such as Ford (F-N), which experienced a 19% increase in sales in both the US and Canada, where 1.56 million autos were sold, or GM (GM-N) (up 6% in the US) and Chrysler (up 17% in the US), the more important news for the future for GM was their success in China, where they became the first car maker to sell more than 2 million autos from their several joint ventures.

In India, sales are expected to have climbed 31% in 2010 to 2.7 million units, while in Brazil auto sales climbed to another record for a fourth consecutive year, up 10.6% to 3.33 million. Meanwhile France’s auto sales slipped 2.2% to 2.25 million in 2010, as a “cash for clunkers” scheme introduced by the French government wound down. In other words, India’s auto sales were 25% higher than France’s and Brazil’s almost 50% higher, yet the ownership of vehicles in India is only 14 per thousand inhabitants, less than half that of Africa, let alone China, where ownership levels have reached 40 per thousand people, according to the Global Auto Report from Bank of Nova Scotia.

 In the G7 developed nations, ownership levels average 673 per thousand, so reaching even an ownership level equivalent to 10% of the developed markets implies that car ownership in China needs to grow more than 50%, and in India it needs to more than quadruple from present levels. This is doubtless why an additional 1 million units capacity is being added in India this year, but China remains more than 6 times bigger than India and 5 times larger than Brazil, is expected to expand its capacity by more than one third this year and will doubtless continue to be the largest auto market in the world for the foreseeable future. This is why such manufacturers as Volkswagen, GM, Ford, Fiat, Toyota and Honda are concentrating their expansion efforts in Latin America and Asia, and why if one could buy GM’s emerging markets operations, which are No. 1 not only in China but also in Brazil, the stock would be an attractive investment. Unfortunately, investors get the US and European operations as well, with their problems of too  much capacity, aging work forces, and big pension and healthcare liabilities despite the benefits of going through bankruptcy in 2009  to reduce their costs.

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