Automobile companies are shifting into high gear and driving into the revved up car market in China in a bid to escape the financial tsunami that has knocked the wind out of the sails of the industry.
What makes the drive to China even more irresistible is the recent stimulus moves announced by the government to bolster new purchases, coming at a time when the markets of the yonder seem to be drying up.
The stimulus package is expected to boost auto sales both in big cities and rural regions, especially for small cars and farming vehicles. The moves will add 300,000 units to market demand this year and also help in the upgrade, reshuffle and integration of the entire industry. Special emphasis has also been laid on developing green energy technology as a long-term consideration.
Purchase tax on vehicles with engines of less than 1.6 liters has been halved and exchange of old vehicles for new ones with smaller engines subsidized. The purchase tax adjustment, from 10 percent to 5 percent, came into effect from Jan 20. A sum of 5 billion yuan has been set aside as subsidy for farmers.
Statistics from China Association of Automobile Manufacturers (CAAM) show that in 2008, cars with engines of less than 1.6 liters sold across the country account for 60 percent of the total sedan market, with volumes of over 3.1 million units.
Lang Xuehong, analyst at auto industry research firm, Sinotrust, said the tax cuts would benefit Chinese brands like Chery, Chang'an and BYD Auto as they mainly produce vehicles with smaller engine sizes.
"The purchase tax cut measure is the most effective tool that the Chinese government adopted for market recovery in the current situation," said Ricon Xia, analyst, Daiwa Securities. The tax adjustment is expected to boost auto sales in China this year by 3 percent to 6 percent, he said.
"China's auto market is set to pick up in the second half of this year and continue its steady progress in the future," said Yale Zhang, director, Greater China Vehicle Forecasts for US consultancy CSM Worldwide Corp. He expects the market to grow at 6 percent this year and maintain a healthy growth rate of around 10 percent starting from 2010.
He added that the measures would also help the country come close to the annual sales target of 10 million units set by CAAM last year. In 2008, automobile sales in China increased slightly by 6.7 percent from the previous year, the lowest in the past decade, according to CAAM.
China was considered to be the fastest growing automobile market in the world with sales growth rates of over 20 percent in the last three years. That is something of the past now, said experts.
But China would also be the first to rebound from the industry stagnation and maintain a steady growth rate, they said. GF Securities expects market demand in the country to recover in the second quarter.
"We continue to hold confidence towards the future of the Chinese auto market. In 2009, Mercedes-Benz will bring an increasingly variant brand experience for Chinese customers through a more diversified product line, caring services and rich brand connotations," said Klaus Maier, president and CEO, Mercedes-Benz (China) Ltd.
Dieter Zetsche, chairman, Daimler AG and head of Mercedes-Benz has promised that the German luxury sedan supplier would "definitely increase the investment in this most potential market".
Kenneth Hsu, spokesman for Ford China, said the US auto giant's financial woes in its home country would in no way derail their expansion plans in China. "We will continue to introduce new products and invest more in China with profits from our local operations," Hsu said.
"The financial crisis and slowdown of China's auto industry won't make us reduce production or sales in China. Instead, we are considering to expand our product portfolio here," said Peter Schwarzenbauer, member of the board, Audi AG.
