Autos

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Booming Chinese car sales look to have hit a speed hump.

The period of exponential growth is over, according to executives at last week's Guangzhou Auto Show. Slower growth rates are a ``new normal'' for the country, according to IHS Automotive. Vehicle sales will expand at a 3 percent pace this year, compared with a 36 percent average over the previous decade. 

True, recent months have been promising, as the local head of Ford's Lincoln brand told Bloomberg last week. Vehicle sales increased 13 percent from a year earlier in October, the fastest pace this year. The trouble is that the country is running out of road: 

The Slow Lane
Car sales have grown at a faster annual pace than the road network in every year since 2007
Source: Bloomberg Intelligence, China Automotive Information Net

Roads can accommodate only a certain number of cars before they hit constant gridlock. Beijing's post-2008 stimulus program hasn't helped road building keep pace with the explosion in car registrations. Even at lower rates of growth, demand will probably continue to outstrip capacity. China had just 58 cars per 1,000 people in 2010 versus 797 in the U.S. -- and it already has a bigger middle class, according to Credit Suisse

Still Emerging
Motor vehicles per 1,000 people, by country
Source: World Bank
Note: 2010 data; India and Canada figures are for 2009

By 2050, China will have added 292 million people to its cities, a 39 percent increase on the present, according to the United Nations.  It already has 15 cities with worse congestion than New York, according to the TomTom Traffic Index, and Bloomberg Intelligence expects the country's roads to hit their peak density in 2025 or even sooner.

Authorities are responding. Since Beijing put a cap on the number of new car registrations issued each year in 2010, Tianjin, Shanghai, Shenzhen, Guangzhou, Hangzhou and Guiyang have all followed suit, according to McKinsey. While building roads is hard, it's even harder in densely populated urban areas, as Robert Moses and Jane Jacobs found out in New York. Road building in China's big three cities has lagged less urbanized provinces in every one of the past eight years bar 2009, according to Bloomberg Intelligence data:

Street Life
Annual growth in Chinese road network kilometers for different categories of province, %
Source: Bloomberg Intelligence
Note: "Urban" shows data for Beijing, Tianjin, Shanghai provinces; "Coastal" for Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, and Guangdong; "Eastern inland" for Heilongjiang, Jilin, Inner Mongolia, Shanxi, Henan, Hubei, Anhui, Jiangxi, Hunan, and Guangxi

Mass transit makes more sense as a way of transporting China's dense urban populations. The country's top five cities average 5,980 people per square kilometer, according to Demographia, compared with 1,760 in the U.S. and 3,940 in Europe. Sure enough, China is in the process of doubling the distance covered by its urban metros, according to the International Rail Journal.

That doesn't mean there'll be no market for Chinese automakers in the future. In the U.K., new car registrations have flat-lined since the early 1990s, but the average 3 percent annual growth has been enough to keep the country's production lines churning out a steady 1.5 million cars a year. Still, output has yet to regain the level it peaked at in 1972, and the intervening decades have seen plenty of pain as automakers wound down excess capacity. 

The trick in a formerly fast-growing industry such as the Chinese auto sector is to spot the tipping point in advance and ensure you're not the one with idled production when it comes. With elevated inventory levels indicating a shortfall in demand in 14 out of the past 16 months, that point may be coming sooner rather than later. That's enough to keep any auto executive awake at night.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net