Will the Rescue Package for Car Makers Succeed?

Output and sales of China's auto sector broke the 8 million mark in 2007, making China the world's second largest car consumer only after the United States. But as the financial crisis looms, major auto markets around the world have reported negative growth rates and China's auto sector is no exception. Growth in sales of passenger cars dropped to 7.3 percent last year, the first year of single-digit growth in over a decade. So, how are car manufacturers planning to survive the slump, and will waning consumer confidence force foreign car makers to reduce their investment? LJB has the story.

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President of US-China Automotive Exchange, Wang Dazong reckons that the domestic auto market has seen slowed growth rates and declining exports, but from a long-term perspective he says the industry maintains a strong momentum.

"For multinational companies, China is still among the most important countries in terms of the size of the market. Putting China into a global arena, it is still among the most vital markets. The 25 percent decrease in auto sales during the fourth quarter of last year was just a comparison figure, but not an absolute number. In this sense, multinational companies are not likely to give up the China market, and on the contrary, they are much keener on its outlook as many other markets are sliding into recession."

Wang Dazong gave examples of GM and Ford. Though both have suffered a slump in sales in their home market, their joint ventures in China have maintained steady growth. Showing their confidence and recognition to a hopeful Chinese auto market, GM and its joint ventures completed several important projects recently, including the expansion of Wuling's plant in the eastern coastal city of Qingdao and the second phase of its Liuzhou West Plant in southwestern China.

In addition, Shanghai GM, the American giant's joint venture with China's largest automaker SAIC in December invested 2.7 billion yuan, some 390 million U.S. dollars, to open its second vehicle manufacturing plant in northeast China, producing the new Chevrolet Cruze. With this new plant, GM has become one of the largest makers of passenger vehicles in China.

The Focus compact is among Ford's bestsellers. Lower than expected sales last year did not change its timetable of launching new models. Last month, its joint venture Chang'an Ford unveiled its "Fiesta" series tailored to the China market. Vice general manger of Chang'an Ford Sales Company Liu Chunwei says despite the slowdown in sales, the Chinese auto market remains a beacon of hope to foreign carmakers battered by rapidly shrinking demand in the U.S. and other major markets.

"The reason why we're optimistic about the future of the Chinese market is that no matter what external conditions are, we are growing with the market and China is forecasted to become the world's largest car market in the future. On the other hand, in the wake of the economic crisis, the government has fine-tuned its macro control policies from containing inflation to propel steady growth. Policies including garnering financing for small and medium-sized enterprises and providing favorable tax reduction to customers are all aimed at boosting domestic consumption. We believe in the long run, the policy will take effect and demands will be prompted."

Echoing this viewpoint, European carmakers are also eyeing the lucrative China market. Mercedes-Benz has recently announced its strategic partnership with the National Grand Theatre to sponsor all weekend charity concerts this year. Its sales director Cai Gongming says further involvement into charity affairs reflects the company's resolve to stay in the market.

"I think in a global context, there are two clear points. Firstly, China is playing an increasingly important role and global car makers are pinning their hope for business revival on China. Secondly, we firmly believe heavy investment brings high returns, so we think what we're doing now is rewarding."

Since last month, sales tax on vehicles with engines of less than 1.6 liters have halved. The government is also giving one-off cash rebates totaling $732m to owners of older vehicles who trade them in for newer, more fuel-efficient ones. Auto expert, former chairwoman and managing director of GM Taiwan, Dr. Liu Xiaozhi anticipates the tax reform will boost both production and sales of low-emission cars.

"There is a huge potential in China for clean energy vehicles. And this provides rooms for manufacturers to develop energy-saving vehicles, such as hybrid cars and electric cars. If Chinese auto makers can take the time and grasp the opportunity when the whole industry is going under restructuring, they have the chance to win the market."
In the next three years, the government will provide 10 billion yuan, or 1.5 billion U.S. dollars to automakers to help upgrade their technology and develop alternative energy vehicles.