GM China Head Forecasts Auto Demand Nearing End of Slump
General Motors Co. (GM), the world’s biggest automaker, said China’s auto industry is poised to rebound from its worst four-month slump in 14 years as consumers return to car dealerships during the second half.
“I’m still pretty optimistic it won’t take much to bring them back into buying mode,” Kevin Wale, head of the automaker’s China operations, said in an interview in Shanghai yesterday. “I can’t see anything in the Chinese environment that’s leading to an unusual decline in consumer confidence.”
The comments indicate GM may be more optimistic about the industry outlook than analysts at CLSA Asia Pacific and Macquarie Group Ltd. (MQG), who’ve cut their growth estimates for China’s automobile market in the past month. Sales in the world’s largest vehicle market have fallen this year through April as fuel costs rose and the economy slowed.
The Chinese vehicle market may be ripe for a rebound partly because slowdowns in the country tend to last for a quarter or two, shorter than in the rest of the world, said the 57-year-old executive, who moved to Shanghai in 2005 after serving as chairman of GM's U.K.-based Vauxhall Motors brand.
The high number of people in China that have never owned a vehicle also means purchases can only be deferred for a limited period of time, compared with Western economies, where consumers typically already own cars and can put off buying decisions for years, he said.
‘Latent, Underlying Demand’
“There is strong latent, underlying demand,” he said. “Since I don’t see a major issue with economics or liquidity, I’m assuming it’s going to come back relatively quickly.”
While Detroit-based GM is on track to meet its China sales target for this year and continue outstripping market growth, overall auto industry deliveries in China may miss the 7 percent to 10 percent increase he forecast in January, Wale said. Concerns about the fallout from Europe’s debt crisis may also be discouraging some consumers from buying, he said.
It’s not just car demand that’s slumping. Deteriorating economic indicators ranging from trade data to industry production and home prices led Premier Wen Jiabao last week to call for a greater focus on growth.
Mounting optimism the government is preparing to introduce stimulus measures to revive auto demand may affect showroom sales in the near term, Wale said.
“People will wait and see if something’s going to happen,” Wale said. “The fact that people are talking about it means if something doesn’t happen then we’re still going to have continued hangover.”
Incentives stimulating rural consumption and subsidies for fuel-efficient vehicles would have the biggest impact on boosting car sales, Wale said, because they would directly benefit those in the advanced stages of purchasing automobiles.
China’s cabinet agreed in May to revive financial incentives for consumers to trade in their passenger cars to help spur demand, a Chinese government official said this week. That’s in addition to a 6 billion yuan ($946 million) subsidy program announced May 16 for purchases of vehicles with engines smaller than 1.6 liters.
Chinese demand for passenger and commercial vehicles from January to April fell 1.3 percent, the worst four-month start to a year since 1998, according to data from the China Association of Automobile Manufacturers.
Macquarie analysts last month said they cut Chinese auto sales growth estimates for this year to 3.3 percent from 7.8 percent, citing “subdued” consumer sentiment and “ongoing risk to exports.”
GM, which makes vehicles in China with SAIC Motor Corp. (600104) and FAW Group, is outperforming the market. Its sales in the country during the first four months of the year increased 9.4 percent to 972,369 units.
“The Japanese are going to come back this year because last year they had the adverse effects of the tsunami and floods in Thailand, and Volkswagen has been very aggressive in the last 18 months,” Wale said. “There are so many strong competitors out there.”
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