China Car Sales: The End Of Hope For US Auto Firms

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It is the Year of the Rat in China. Perhaps they could change that to the Year of the Dog so that it would be in keeping with the general mood.

One of the hopes of the US car companies is that China, the world’s second largest auto market after America, would keep up double-digit vehicle sales growth. An economy with 10% GDP increases and a ballooning middle class had to be the salvation of the industry.

Last fall, the numbers started to turn against car sellers. The increase of vehicle purchases year-over-year started to drop.

While the predictions about GM’s (GM) future move back and forth between bankruptcy and solvency based on huge cost cuts and creditor concessions, the firm’s sales in China has gone way off track.

According to The Wall Street Journal, "Sales at GM’s passenger-vehicle joint venture, Shanghai General Motors Corp., fell 7% to 445,709 units from 479,427 units in 2007."

GM’s reports sales in four regions: North America, Latin America, Asia, and Europe and The Middle East. Domestic sales and numbers from the EU are already a catastrophe. None of the Latin American countries can avoid a global recession altogether, so revenue from that part of the world will start to slow.

That leaves Asia to pick up where the rest of the company could not. Now that China is faltering, there is nowhere left to grow.

The part of the federal government bailout of GM which is never mentioned is whether overseas sales will help or hurt the firm’s earnings. Up until the middle of 2008, the answer was clear. Good numbers from off-shore were partially offsetting red ink in GM’s home market.

The dynamics of GM’s foreign business have changed in the blink of an eye, and with that the numbers Congress is looking at are completely flawed.

Douglas A. McIntyre