Monday, November 10, 2008

VeeDub China: Scared That Batteries May Run Out

VeeDub traditionally had projected a green image, but in the darkness of their hearts, they are skeptical about alternative energies. Sure, Wolfsburg does research into fuel cells, but doesn’t truly believe in them. Despite occasional announcements, Hybrids are usually being left to the competition.

Ages ago, VeeDub had a “3 Liter Lupo,” a diesel-powered car that got 78.4 mpg. Introduced in 99, it was a rip-roaring failure: It was too expensive. To reduce weight, pricey aluminum and magnesium alloys had to be used. People loved the car and didn’t buy it. VeeDub managers soon realized: When faced with a questionnaire, customers obediently claim they want to save fuel and protect the environment. Back on the Autobahn, they don’t want to be left behind, the ozone hole be damned. If the environmentally friendly car is too expensive, it will rot in the showrooms. This conundrum besets many, if not most, cars powered by alternative energies. "Zero emission!" "1oo MPG!" Sounds good until you see the pricetag. "Gulp." And it's back to internal combustion.

The prevailing notion in Wolfsburg is to develop the Bluemotion line further, to make conventional gasoline and diesel engines more efficient, to lower displacement, and to add pep via wicked blowers. VW will also revisit the Stop/Start anti-idling technology. That’s likewise old hat, they had it in their mid 90’s Ecomatic Golf, which scared the dickens out of its owners by shutting off the engine at the red light. (A car with 200+ mpg is likewise on the drawing boards and being trotted out to green confabs as a concept. Nobody believes it will see the lights of the showrooms: Too lame with of 75MPH at WOT, too expensive to buy.)

That negative tendency towards alternate propulsion may change, at least in China (where, incidentally, VW makes more cars than at home.) On the sidelines of the 6th Annual China Automotive Industry Forum held in Shanghai on Nov. 6-7, China’s National Business Daily picked up a sudden interest in battery makers on VW’s part. We are not talking starter batteries here. The paper cornered Xu Jian, VW China’s VP, and Mr. Xu let it drop that Volkswagen is interested in pure plug-ins. Xu opined that purely electric cars will develop faster than the darned fuel cells. With Chinese battery makers, backed by Buffet, going into the car business, Volkswagen is now concerned that they might not find enough batteries in China. So they are reaching out to manufacturers and dangle joint ventures and other possibilities in front of them to charge-up the supply of batteries.
In the long run, VeeDub stands by its skepticism regarding exotic propulsion: Xu – reflecting popular Wolfsburg wisdom – thinks that by 2020, the good ole internal combustion engine will still putter away, holding an 80 percent market share. The rest will be divvied up amongst plug-ins, fuel cells and whatever other exotica an inventive world will come up with. Volkswagen was usually right with their long term predictions. In the 70’s, fresh on the job, I was introduced to a VW engineer. He said, he was working “on the car for the year 2000.” As an avid consumer of the Jetsons, I eagerly asked: “Oh yeah? What’s it look like?”
“For one thing, it will have four wheels. And the Sheiks will love it.”
Did he lie?

(Picture courtesy Mrdadvisdc @ )

Sunday, November 9, 2008

Hyunday And Chrysler? Not A Seoul In Sight

Preface: This article assumes that the dear reader is at least vaguely familiar with the on-again, off-again dalliance between Chrysler and General Motors, and the grim backdrop to this foreplay. Who isn’t these days?
Halt, off course, it’s pure coincidence: Whenever ChryCo’s consensual sex with GM is a wee of in doubt, out of the bodywork come other supposed suitors. And then there is that very disturbing sub-story. But before we get to that:

Last time GM had second thoughts about the not so pretty bride called Chrysler, a prospective suitor was leaked: Nissan, in a Grand Alliance with Renault. Then, suddenly, the threesome with the attractive Eurasian mixed couple was not consumed, “after Cerberus acknowledged preference for GM,” as the joint Detroit PR Department The Detroit News had it. The hellhounds at Cerberus focused again on an arraigned marriage with the (soon to be demoted to corporal) General. Then last Friday, again announced via the strike-through PR Department, GM said no to wedding bells with Chrysler. Guess the sound of GM’s own death knell was too overpowering for any nuptials.

Sure enough, while America slept, a new rumor hit the wires. As sweat-covered America was tossing and turning through a restless night, Reuters reported that Korean Hyundai is in talks with Chrysler LLC owner Cerberus Capital Management. According to people who claimed carnal knowledge of the discussions, Hyundai made advances to take the Jeep brand off ChryCo’s hands, along with “possibly other assets” of unknown provenience.

The sun rose over Seoul last Saturday morning, and outraged Hyundai spokespersons gave Reuters an earful, loudly denying any fling with the battered U.S. auto loss maker.
"We have no interest in whatsoever in acquiring Chrysler, including Jeep and have not engaged in any discussions with Cerberus on this matter," Hyundai Motor spokesman Jake Jang barked. Basically, Hyundai has other things to do than worry about Chrysler. "Our hands are full now." Jang groveled and hung up. Guess that means a no.
Here, the aforepromised sub-story: Why is it that always when GM says “not tonight, sweetie-pie, I’ve got a horrible headache,” foreign suitors are trotted out? And is it pure coincidence that it’s always suitors from lands that cause the synapses of the average American Joe to rapid-fire the association WAR? I mean, Japan, Korea, France (they were there twice to save the ungrateful frogs from getting eaten.) What’s next? A marriage of ChryCo with Germans? Ah, we nearly forgot: That has been tried before. Vietnamese car maker Mekong expresses interest? Iran Khodro Company gets into Dodge? The possibilities are endless.
(Picture courtesy U.S. Army. Looks like Hyundai doesn't want Jeeps back in Korea.)

Saturday, November 8, 2008

When I Say Bad, I Mean Good: Europe Sees 8 Percent Slump

Bad news (or, if compared to anorexic America, good news) from J.D. Power: Western European auto sales fell by 15.5 percent to 1,035,243 million units in October from a year earlier, reports Automotive News (sub) . They say, the decline in new-car sales in Western Europe could be worse than a slump in the early 1990s. Contrast that to “the worst sales month in the post World War II era,” which GM’s Chief (Non-) Sales Analyst just saw for his employer in North America.

Everything being relative, America's relatives in the Old Country still have it relatively good. If J.D.Power’s crystal ball is still functioning, the Western European car market may decline by 8 percent in 2008, and go down between 10 and 11 percent in 2009. J.D.Power came to the not all too surprising conclusion that this would “place major strains on the European auto industry.” As opposed to the end of the world, which is generall being announced in the U.S. of A. Note: As long as the VW stock goes for between €500 and €1000, depending what time of day it is, or the whims of Porsche may be, as long as BMW’s owneresse can afford millions to pay a gigolo, the European market will be just fine. All things, considered, of course.

Chinese Car Dealers Cry, Close

Ever wondered why cars can be so cheap in China? Now we know why: More and more cars are being sold at a loss in China, Gasgoo reports. In WTO terms, this will probably be misinterpreted as domestic dump(l)ing. While Chinese dealers are accustomed to the same clear-the decks strategies at year’s end as their Western colleagues, the price cuts come a bit too early in the now Middling Kingdom.
Like their Western brethren, Chinese dealers are used to profit margins between 3 percent and zilch. But now, more often than not, it’s south of nada. No wonder many Chinese dealers are following the worldwide trend, close their lot, and seek other employment. Like teaching English (see picture.) A third of them are expected to close shop by year’s end. The more vociferous ones are blaming the manufacturers for overstocking and too demanding sales targets. A familiar song for Western experts. A survey says that over 40 percent of Chinese car dealers in China make no money. A familiar song for Western experts. Ah, the joys of capitalism!

(Picture courtesy d_j_kingpin @

Thursday, November 6, 2008

WSJ: China Won’t Save U.S. Automakers. Duh!

(First published by Bertel Schmitt in TheTruthAboutCars on November 5, 2008)

Ever since it lost its new hotness, this blog has been reporting that the Chinese car market has lost its new hotness. This blog also gave its readers a heads-up that China won’t save U.S. carmakers’ butts, as the Middle Kingdom had done in the past, when skyrocketing sales in China buttressed anorexic auto sales elsewhere on the planet (i.e. North America). That bit of news finally reached The Wall Street Journal [sub]. “China’s Car Market Loses Luster for Foreign Firms,” alliterates the WSJ, surprising everybody except this blog's readers. “Growth in China’s once-roaring auto market has slowed to a near-crawl, casting doubt on the country’s status as industry savior,” writes Patricia Jiayi Ho. Previously, Patricia penned articles titled “Ex-Tuskeege Airman Moore dies at age 82,” or “Badminton club to open in Arcadia,” so she’s clearly qualified to report on expiring markets, and the back-and-forth of the world economy. Patricia’s prose continues: “Foreign giants like General Motors and Ford Motor Co. have increasingly been looking to emerging markets like China and India to provide a much needed fillip to declining sales at home.” And look they did…

GM actually looked quite good for a while in China and had Volkswagen rattle in their jackboots in years’ past. Then, GM dropped the ball. Ford is a nobody in China. Ford’s feeble 240,879 units made in the first nine months don’t even rate a place amongst China’s top ten automakers. Officially, Ford doesn’t count at all in China, they hold only minority shares in two joint ventures. The WSJ wisely refrains from mentioning Chrysler. Chrysler was actually the first foreign carmaker in China. Kindof.

In 1983, then American Motors signed a deal with Beijing Automotive Works to replace its smoke belching Russian GAZ Jeeps with cheap Cherokees, a deal that makes some old-school Chinese still yearn for the Russian model. Chrysler let its first mover advantage fall fallow. “Its overall performance during the past two decades might politely be described as disappointing,” wrote Business Week, a year ago. Chrysler blames it on the Germans.Anyway, the Chinese car market is still growing.

Depending on who you ask or believe, growth is anywhere between 5 and 10 percent this year. Which sets China apart from waning Western Europe and especially from the atrophy formerly known as America. In GM’s Monday conference call, Mike DiGiovanni, GM’s chief sales analyst looked at the October figures, gulped, and said: “If you adjust for population growth, it’s the worst sales month in the post World War II era.” And then, in a rare case of clairvoyance, he muttered: “Clearly, we’re in a dire situation.” Message from China: “Sorry, can’t help ya! “

(Photo courtesy Otaku. Thank you!)

Going down? VeeDub China VP Gets Worried

(First published by Bertel Schmitt in TheTruthAboutCars on November 3, 2008)
How about this for tell me how you really feel: Volkswagen AG, China’s biggest car maker, told Bloomberg (of all people) that “the worst may yet to come” for China’s car market. This cheerful prediction was uttered by Soh Weiming, Volkswagen Group China’s Executive Vice President. Soh Weiming is no stranger to an uncertain future. The imminent ouster of the cigar-loving VP had been floated for years in Beijing and Wolfsburg. But like the Energizer Bunny, he keeps on going and going. And there he was to say that it would be “too early to estimate” the losses caused by the economic slowdown in China’s auto industry.
After a surge of 23 percent in the first two quarters of 2008, Volkswagen’s sales in China dropped 4.2 percent in the third quarter. SAIC, Volkswagen’s joint venture partner in China’s reported a 78 percent plunge in third-quarter profits. The company, which is also in bed with GM, said their vehicles sales growth was only nine percent in the first nine months. Last year, SAIC’s sales had ascended 24 percent. FAW, Volkswagen other joint venture partner, fared better; they reported a 62.39 percent rise in net profits for the first nine months. Soh Weiming made no predictions regarding Volkswagen’s sales in China. Which prompted Bloomberg to point to a government estimate that says that Volkswagen China sits on a pile of 170k unsold cars. Now we understand Soh Weiming’s feelings.

(Photo courtesy Thank you!)

Tuesday, November 4, 2008

How Porsche Buggered the Hedge Funds

(First published by Bertel Schmitt in TheTruthAboutCars on November 3, 2008)

So you thought Porsche financed the VW takeover by foisting overpriced floormats and trucks on their well-heeled buyers? Yesterday’s issue of Die Welt, Germany’s conservative newspaper, thinks different. They undug the dirt on Porsche’s takeover-machinations of Volkswagen. It’s a story that makes Cerberus look like a frisky puppy. It’s an account that makes banks and hedge funds look like morons.

In March 2005, Porsche Chief Wendelin Wiedeking, and his clever CFO Harald Härter traveled to the picturesque Salzburg. They presented to the Porsche/Piech clan their strategy to subjugate the auto giant Volkswagen. The cunning plan: Porsche buys VW for no money. Make that: Porsche bamboozles hedge funds– supposedly the smartest of the smart– into unwittingly forking over the cash.

The Porsche/Piech clan liked the plan, and it was set in motion. Unspoken, but obvious: that meeting included – virtually at least – Ferdinand Piech. As all car cognoscenti know, Ferdinand Piech owns a good chunk of Porsche, and serves as the head of Volkswagen’s Supervisory Board. Did he exercise the powers vested into him, and warned the shareholders of VW of the machinations? We don’t think so.

Using the whole arsenal of arbitrage, swaps, puts, straddles, fraptions, and butterflies, Porsche drove the VW share up, while the hedge funds, fixated on the fundamentals of the flopping auto market, sold short. Porsche used every available loophole of the German law: A swap for instance doesn’t need to be registered. Porsche owned more and more of VW without anyone noticing. Porsche/Piech controlled the news. They could buy low, sell high, and with leverage that would have put the awe in Archimedes. The proceeds were used to buy more stock (to move it) and more options (to make more money.)

Over the years, Porsche kept people guessing why they would invest into VW at all. Three years ago, Porsche announced to an astounded world that they bought 20 percent of VW’s stock. They positioned themselves as the benign white knight that kept VW’s vestigial virginity from being gang-raped by rabid Auslandskonzerne (foreign corporations.) If anybody asked where this would lead, no answers followed.

Did Porsche want just a small chunk of VW? Or a blocking minority of 25 percent? Or, gasp, would they go for 51 percent? When questioned, Wiedekind assuaged the markets: “We are not going for a blocking minority.” A few months later, Porsche had more than 25 percent. Reminded of what he had said before, Wiedekind smiled. He had not lied. A blocking minority was not what they had in mind. They wanted the whole kit and caboodle.

In the meantime, Porsche conducted the orchestra of financial instruments like a Kapital-Karajan. Their financial fiddling did not remain completely unnoticed. Says the Economist, a bit belatedly: “The risks of short selling should have been apparent to the brightest hedge-fund managers in Mayfair and Greenwich because of widespread suspicion that Porsche, a dab hand in currency-derivatives markets, was also mucking about with options on VW stock.”

Indeed, Morgan Stanley warned clients on October 8th to refrain from playing “billionaire’s poker” by betting against Porsche. Max Warburton of Alliance Bernstein correctly predicted Porsche could make billions by squeezing short-sellers of VW’s shares. Porsche’s answer? “A fairy-tale.”

Likewise, Porsche’s balance sheet got curiouser and curiouser: In fiscal 2005/2006, Porsche showed a profit of €2.1b before tax, and of that, a whopping €900m were “non recurring items” – an euphemism for gains from speculation. “Currently, Porsche makes only a quarter of its profits from building its luxury cars,” says Die Welt, “and it won’t be long before their profits exceed their annual sales.” Which stood at €7.4b as of the last fiscal year.

The stock yo-yo of last week may have brought Porsche close, if not beyond that elusive target. In an all-out final attack, Porsche drove the hedgies into panic-buying, psyched funds managers into loading up on VW at all cost. Then, Porsche sold their options and made an even bigger killing. With an utter deficiency of shame, they spun even that as “providing a greater free-float to a constrained market.”

The funny thing: Porsche may get away with the murder of the hedgies. Actually, in Germany, Porsche’s backs are being slapped with Schadenfreude. One CEO of another company that is part of the DAX, wisely said off the record: ”How Porsche engineered the financing of the VW takeover is exemplary. Ingenious!” Ulrich Hocker of the Deutsche Schutzgemeinschaft für Wertpapierbesitz (German Protective Association of Shareholders) grins: “The losers are no small stockholders. This time, it was professionals who should have known the risks.”

The losers see it different: “Stock manipulation” grumbles DWS, the fonds of Germany’s banking giant Deutsche Bank. Unless totally dead, losers have a tendency to get even. Sneers the Economist: “Porsche may struggle to sell 911s to hedge-fund managers for years and years to come.” That may be the most benign revenge of the many that are being hatched in the hedges.

(Photo - Porsche in Salzburg, Austria - courtesy MikeDowdNJ. Thank you!)

The Latest In The Porsche/VeeDub Soap

(First published by Bertel Schmitt in TheTruthAboutCars on November 3, 2008)

Never a dull moment in the ant-eats-elephant soap, a.k.a. Porsche’s takeover of VeeDub. On the heels of what the newspaper Die Welt called the “craziest week in the history of the German benchmark index DAX,” VW’s stock makes headlines again. Or, rather, the headlines are made by a minority owner, the state of Lower Saxony. Nearly forgotten in the broo-haha, that German province, home of Volkswagen’s headquarters Wolfsburg, owns 20.1 percent of VeeDub’s stock. By the dubious virtue of the so-called “Volkswagen-Gesetz” (VW law), Wolfburg’s stake gives the state of Lower Saxony veto power over just about anything they like or dislike. Originally, that law was intended to ward-off hostile takeovers by foreign powers. (Remember GM?) Now, it provides the legal means for provincial politics. Niedersachsen’s Governor Christian Wulff declared yesterday: “Profits going to Porsche? Not if you ask me.” And Porsche will have to ask Mr. Wulff.

If Porsche holds 75 percent, they can enter into what’s called a “controlling agreement.” They book all of VW’s profits as Porsche’s, and run VW from Stuttgart-Zuffenhausen. If there wouldn’t be that little detail called Volkswagen-Gesetz. Which the EU wants to abolish, BTW, to the applause of Porsche. Still, the law is on the books. And if Porsche doesn’t make nice with Lower Saxony, their best laid plans go the way of mice and men. In the meantime, Herr Wullf uses his minority position to throw gubernatorial dirt in Porsche’s direction: “It’s doubtful that Porsche can afford the 75% anyway.” Ha, take that, you upstart little dwarfs! (In the next installment of the saga from soapland: The inside story of how Porsche got VW on the cheap. Makes Cerberus look like a playful puppy.)
(Picture courtesy of  NDR. Thank you!)

Monday, November 3, 2008

Chinese High-Rollers High On Rollers

(First published in TheTruthAboutCars on November 2, 2008)

It’s not yet that Chinese mothers admonish their one-and-only child to “eat up, there are children starving back in America.” But it’s getting close. Case in point: This weekend, another Rolls-Royce showroom opened in Shenzen, Gasgoo reports. It’s the seventh Rolls Royce retail location in China. Another one, located in China’s industrial center Ningbo, will open its doors in a few months. Rollers are on a roll in China. I counted two Phantoms alone in the underground garage of my Beijing building.

At the Shenzen opening, Rolls presented their new Rolls-Royce Phantom Coupé to the Chinese public. It’s their entry model. “Nearly two-thirds of Coupé customers worldwide have not owned a Rolls-Royce before,” said Jenny Zheng, Rolls-Royce Motor Cars’ General Manager for Greater China. BMW are thanking their lucky stars…

While Rolls-Royce’s parent BMW saw its global sales slide by 15 percent in September, Rolls flipped their Emily at the flagging economy, and increased sales by seven percent in the same month. Year-to-date, Rolls-Royce sales rose a record 43 percent year-on-year. Granted, that total was only 827 cars. But in this economy, every car counts. Especially as each example retails at $415k base - and no true Roller proprietor will get caught in a riff-raff reeking base model. “There’s been an 80 per cent increase in the number of vehicles sold this year with some form of bespoke element,” says the British Autocarmagazine with the appropriate nasal accent. Not surprisingly, sales in the United Arab Emirates are up by around 70 per cent. China? Fifty percent rise.

You think it’s a fluke? Further in the same vein(ity), New Delhi’s Financial Express reports “that Mercedes Benz India has registered an impressive 47% growth in car sales for the first 10 months of the current calendar year.” Sales of C-class Benzes more than doubled. Holy cow! And by the way, Time Magazine already said two years ago that Chinese children are getting fat.

(Picture courtesy Kaeyau. Thank you!)

Sunday, November 2, 2008

Old News Of The Day: Toyota Tops GM

(First published in TheTruthAboutCars on November 1, 2008)

“Toyota Motor Corp. trumped General Motors (GM) in total car sales during the first nine months of 2008 to become the world’s top car producer for the first time,” the Mainichi Shimbun reports from Tokyo. “Huh,” say you, “hasn’t ToMoCo trampled GM already?” Not exactly, and not officially. But they are kicking ass and GM to the bottom. Unstoppably, one may add.

“GM’s sales between January and September in 2008 were down 5.8 percent to 6,655,751, according to figures released by the company on Wednesday. Toyota’s sales for the same period, including those of subsidiaries Daihatsu Motor Co. and Hino Motors, were 7,051,029, almost unchanged from last year,” writes the Tokyo broadsheet with a kuso-eating grin on their faces, in the same sentence dispelling rumors that ToMoCo had contracted the galloping auto trade tuberculosis. [NB: Mainichi is one of the top three Nipponese papers,thick with Japanese politicos. Two of Mainichi’s CEOs became Prime Ministers of the Land of the Rising Corolla.]

Officially, and unbelievably, GM is still the world’s largest automaker. The official score keeper of all things auto is the oddly French-named “Organisation Internationale des Constructeurs d’Automobiles,” better known as OICA. In OICA’s 2007 tally of units sold, GM had edged-out Toyota by 800k units, and by creative bookkeeping, such as counting sales of companies where they had only a minority share. Immediately, Toyota shouted “foul!” (Politely.) They pointed to 9,497,754 units Toyota had made (as in produced) worldwide in 2007, versus 9,349,818 made by GM. Be it as it may, in the world according to OICA, GM is still the top dog until the fat lady sings the aria of the 2008 numbers.

With a deep bow towards Detroit, the Mainichi scribes now rub it in slicker than a Tokyo oily massage: “And while GM just beat out Toyota in total sales over 2007 as a whole, good first half figures and a relatively soft blow from the economic crisis compared to its American rival mean that Toyota is set to take the top spot this year.” You bet your ketsu they will.

(Picture courtesy of Thank you!)

Saturday, November 1, 2008

VW Profits Up 15%; China’s Automakers Also Doing Well

(First published in TheTruthAboutCars on October 31, 2008 )

VeeDub in Germany has just issued their numbers for the past nine months of 2008. Viewed through the prevailing “the world is coming to an end” perspective, VW’s financial results are financial pornography, performing better than the male lead in a Russ Meyer movie. We’re talking a 15 percent gain, a money shot of more than $6b pretax. From January to September 2008, VW moved 4.8m units and grabbed a 10.1 percent share of the world market, according to the usually reliable Automobilwoche [sub]. Despite of what’s happening elsewhere in the piston business, Volkswagen’s CFO Hans-Dieter Pötsch stands by his bullish guidance for 2008: the predicted numbers will ... come.

Elsewhere, China’s automakers have also released profit reports for the third quarter. From July to September, the 17 companies combined automotive revenues totaled 47.385b yuan ($6.93b), down a mere 2.9 percentage points from last year. Their net profits drooped to 747m yuan, down - oops - 62.4 percent year-on-year, laments the government’s news agency Xinhua via Gasgoo. Never mind. Profits aren’t a Chinese company’s main objective; they often leave that to their presence in Hong Kong, where taxes are low. The notable news: they ain’t losing money.
That said, China’s bad boys are from Detroit’s central casting: China’s former car giant Shanghai GM has completed only 54 percent of its 2008 sales goal. In a wise move, the joint venture reduced this year’s sales target of its Chevrolet brand by 25 percent. Likewise, big cheese Chinese automaker FAW reduced 2008 targets for its Magotan (think VW Passat B6 platform) to 70k units from the 90k target set in January. Which didn’t faze Wolfsburg one bit.

(Picture courtesy of Thank you!)

VW’s Martin Winterkorn To World: “Don’t Panic!”

(First published in TheTruthAboutCars on October 30, 2008 )

“Was uns nicht umbringt, macht uns härter.” What doesn't kill us, make us stronger. Martin Winterkorn may not have quoted Friedrick Nietzsche in his speech at the International Zulieferer Börse (IZB), related to us via Automobilwoche [sub]. But the CEO of Volkswagen’s theme was clear. “Don’t panic!” Winterkorn said (in German). VW will emerge from the crisis “stronger than ever.” Winterkorn pointed to growth markets such as China– which did little to calm suppliers’ fears (unless they were Chinese). “In China, 100 million people have a driver’s license,” VW’s capo di tutti capi said. Correct. “Only 10 million have a private car,” he added.

Wrong. Matter of fact, nobody really knows how many private cars there are in China. once had two numbers in the same article: “The total number of private cars in China jumps 32.5% to 15.22 million units by the end of 2007,” Gasgoo wrote. A paragraph later.. “35.34 million are private cars, an increase of 20.8% from one year earlier.” It’s easy to get confused in China. But if VW, China’s largest auto manufacturer doesn’t know the market’s size, who does? OK, now you can panic. [NB: the IZB is an ingenious cost-cutting measure of VW Purchasing whereby parts suppliers meet in Volkswagen's Autostadt-- and pay for the privilege.]

(Picture courtesy of . Thank you!)

China’s BYD EVs Headed to Europe. Then Stateside. Allegedly.

(First published in TheTruthAboutCars on October 29, 2008 )

While TTAC has Tesla on a Death Watch, aspiring Chinese EV-automaker BYD is getting massive street cred in The People’s Republic. In case you’ve got something called a life, BYD stands for “Build Your Dreams.” Since late September, “BYD” also stands for “Buffet’s Yankee Dollars.” Omaha’s Oracle liked the company so much he wrote a check for $230m for a 9.89 percent stake. [NB: Buffet knows the tax consequences lurking in a CFC-- and we're not talking chlorofluorocarbons.] Based in Shenzen, BYD is one of the world’s largest manufacturers of rechargeable batteries for cell phones. According to The New York Times, “the company also has a fast-growing auto-making unit that accounts for nearly a third of its revenue and makes fuel-efficient compact and subcompact cars for the Chinese market.” They have some bitchin hybrid and plug-in cars in the works with specs that scare the BYDickens out of the competition– if they’re half true.

Today's BYDispatches:

1.) Gasgoo reports that BYD is on course to sell 200k automotive units this year; double that next year. The F0 model (a clone of the Toyota Aygo/Citroen C1/Peugeot107) just made the Top Ten in China. The company will soon begin selling its first electric hybrid car in China, followed by an all-electric vehicle that could go 300 kilometers on a single full charge. [ED: or not.] The biggest break-through: fast-charging in 15 minutes to 80 percent capacity.

2.) Reuters reports that BYD has signed up 10 distributors for its plug-in hybrid car in Europe ahead of its targeted entry in 2010. Fleet buyers including Deutsche Post AG’s delivery arm DHL Express have indicated initial interest, or so BYD says. Henry Li, General Manager of BYD Auto’s export trade division is electrified by the news. “We’ll start selling in Europe before we get into the United States.”

3.) Motorauthority says that BYD hybrids and plug-ins will definitely be on sale in the U.S. in 2010, after BYD is done “talking to some third-party consulting and engineering companies to get a thorough understanding of the safety standards” in the U.S. Good thinking.

(Picture courtesy of Huffingtonpost. God knows where she got it from. Thank you all the same!)

They Are Starving In China - For Gas Guzzlers

(First published in TheTruthAboutCars on October 25, 2008 )

Last Thursday, the cargo ship CSCC Shanghai left Ventura County’s Port Hueneme with a load of near-extinct species bound for Shanghai, China: 2,100 GM big bore Buicks and Cadillacs. A lot of cargo space was also taken-up by gas-gulping Cadillac Escalades. China’s importing the American behemoths like they are going out of style (which, of course, they are). According to China’s General Administration of Customs, SUV imports from January to August surged a whopping 75 percent year-on-year, to 147k units. In fact, SUVs amount for half of the total imported vehicles.(Imported sedans only increased 17 percent.) Even higher gasoline prices and punitive taxes slapped on big displacement vehicles could not suppress China’s appetite for cubic inches. As far as GM’s concerned, China won’t go hungry. GM logistics specialist Don Asdell told the Associated Press that he’s looking at one or two boatloads a month for the Chinese market. Needless to say, there’s more (says so right there).

China will also import more foreign GM technology for domestic production and consumption. Gasgoo reports that GM will bolster its Chinese Buick line with European and American implants. Shanghai GM will use the Delta II platform (think Chevy Cruze) to make its new-generation Buick Excelle. Open source auto intelligence analysts scoured a new car model list recently released by China’s auto industry regulator. They found two new Shanghai GM models, code-named SGM7205 and SGM7241. Further prying revealed that these are longer-wheel based models of the Chinese Buick Regal and LaCrosse, made from the Epsilon II platform (a.k.a. Opel Insignia.) The new models are expected in China’s showrooms by year’s end.

Chinese Car Exports Retreat, Return Under Cover

(First published in TheTruthAboutCars on October 28, 2008 )

For the few past years, European and American automakers looked to Chinese carmakers with hope and trepidation. They hoped the booming Chinese market would lift their worldwide sales. It did. They feared the Chinese would export cars en masse, swamping Europe and the U.S. with cheap vehicles. They did not. For various reasons (crash tests, emissions, the economy), the arrival of the four-wheeled Yellow Peril was a non-starter. What little exports the Chinese managed went to second- or third-tier markets like Africa or South America. Even those are are going down, down, down. In August, China exported a mere 44,400 units, a decline of 22.18 percent month-on-month and 11.29 percent year-on-year. This according to numbers straight from the China Association of Automobile Manufacturers, quoted in Gasgoo, which calls the news “discouraging.”

Chinese companies who had Europe in their sights are holstering their guns. The German trade publication Autohaus reports that Chinese auto maker Geely is back-pedaling from prior announcements of an entry into the European market. With unusual candor, Jie Zhao, Vice President of the Zhejiang Geely Holding Group said: “Our products aren’t ready for the European market. We are realistic. We will not get ahead of ourselves.” According to Jie Zhao, they may reconsider a market entry “after 2010.”

Instead, Chinese exports are happening under cover. Under the cover of your car, to be exact. More and more parts in your American or European car are already made in China. Compared to 2002, exports of automotive products surged twentyfold to $41b last year. With cost cutting and job cutting being the mantra, this is just the beginning. Gasgoo reports that Daimler AG plans to increase its sourcing of automotive components from China nearly eight-fold within four years. The luxury car maker will buy $3.25b worth of car components per year in China, up from the $400m for this year. Will your next S-Class Merc be Made in China? Partly, at least.
(Picture courtesy Thank you!)

I'm sorry, won't happen again, really, I swear

I was so busy writing for TheTruthAboutCars, that irrenverent site in America that was crazy enough to hire me as their (cheap, as in Chinese cheap) Man-In-China that I neglected my own blog. Which was promptly noticed by my only reader, Jennifer, who, by the way works for Gasgoo. It is Gasgoo where I turn to first in the morning to get the latest on Chinese cars. If Gasgoo complains, BS wakes up!

To make up for my past sins, here is a selection of articles recently posted at TheTruthAboutCars. They are written for an American readership, so please pardon the puns.

German Stock Exchange To VW: “One More, And You’re Toast”

Reacting to the recent dervish dance of the VW stock, Germany’s stock exchange put their foot down hard. Any more funny business, and VW will be kicked out of the DAX, Germany’s equivalent to the Dow Jones. As of Monday, if a stock reflects more than 10 percent of the index, and if its volatility did exceeded more than 250 percent in the preceding month, that stock will be a goner as far as the DAX is concerned.

To put things into perspective: Last Tuesday, the weight of the VW stock in the DAX was 27 percent, and the 30 day volatility had redlined to 388 percent. If the new rules had applied, VW would long be evicted by now. Come Monday, VW will be represented in the index with 10% (Achtung!) and if there’s any more hip-hop like last week, then it’s “raus, raus, mach schnell!”

The German Exchange sugar coats the new rules as “preventative measures.” Not a lot of people are buying the carbohydrate. “I think, they are setting the stage for kicking VW out of the DAX,” quoth an expert, who’s name Automobilwoche, wisely did not want to reveal.

The Handelsblatt, not quite Germany’s equivalent to the WSJ, doesn’t rule out further yo-yoing of the VW share. Demand is high, supply is limited, and the hedgies are still loaded with borrowed stock. The new rules may actually induce volatility. “If VW goes above 10 percent of the DAX, we must sell,” said Marc Brubeck of Barclays Global Investors. Their index fund alone holds €2b worth of VW stock.

If VW is out of the DAX, the price is set to collapse, and Porsche will be able to buy whatever shares they want at fire sale prices. At the time of this typing, on Friday evening, at 5:38pm Frankfurt time, the VW stock was well behaved. It stood at €504.99, a mere €4.89 higher than its previous day’s close. Good boy! Now sit.

(Photo courtesy kruhme. Thank you!)

It’s A Truckedy: Volvo’s Rigs Poofed

You think car sales are bad? Try trucks. If you are anywhere close to the big rig truck business, take a Valium, aggression management counseling, or a gun before reading further.

European truck maker Volvo admitted to an aghast London Evening Standard that European sales for new Volvo rigs have gone up. Gone up in smoke, that is. Volvo’s truck sales evaporated by 99.7 percent. Yes, you read right. We repeat: Volvo’s truck sales are a mere 0.3 percent shadow of themselves. Volvo took orders for just 115 new trucks in the last three months. In the third quarter of 2007, Volvo sold 41,970.
Global orders for Volvo imploded by 55 percent in the last three months. Truck maker Scania said its Western Europe truck orders collapsed by 69 percent. (Tut-tut to London: The Evening Standard says that “Volvo has majority control” of Scania. Apparently, the news by-passed the Brits that in July, VeeDub had raised its voting stake in Scania to 68.6 percent. Which they probably deeply regret in Wolfsburg. )

Volvo also makes trucks under the Renault and Mack brands. Volvo is Europe’s second biggest truck maker, after Germany’s Daimler AG. No word from Stuttgart yet on their sales, or utter lack thereof. But as goes Volvo, so goes the neighborhood. Volvo’s car division had been sold to Ford in 1999. (Higher learning trivia: “Volvo” is Latin and means “I roll.” In post-Lehman English, it auto-antomized to “I roll over.”)

(Picture courtesy jwood. Thank you!)

Tuesday, October 28, 2008

D’oh: China Feels The Pain

Despite unmitigated appetite for anything that has wheels, the Middle Kingdom is no longer immune to the world’s motor malaise. is an Indian website that tracks the steel market and that has a professional interest in anything that stamps and grinds that metal. They got ahold of Cheng Xiaodong, who is (get ready for this) “Head of the vehicle price monitoring arm of the National Development and Reform Commission” of China. That head opined that the Chinese auto industry is ripe for a big consolidation. That unsuspected revelation prompted Huang Zherui, analyst at CSM Asia in Shanghai, to likewise gaze in his crystal ball: "In a downturn, only strong players can survive, local carmakers may be hit the most by slowing demand as buyers of their vehicles have less purchasing power than motorists opting for higher end products." Wow. Who would have thought that?

No need to increase your sodium pentothal to see the truth: China’s Top Ten carmakers (SAIC, FAW Group, Dongfeng, Chang'an Automobile, Beijing Automotive, Guangzhou Automobile, Chery Automobile, Brilliance, Hafei Motor, and JAC) hold a combined share of 84% of China’s still chugging along car market. This according to Gasgoo, who analyzed new data released by the China Association of Automobile Manufactures (CAAM.)

At last count, China sported 52 brands, obscenely more than any other country on this planet. Some more may have been missed in the count. With 42 makes fighting for the crumbs that fall off the Big Ten’s tables, Mr. Cheng can be 99% sure of the consolidation he predicts, and his government desires.

Even China’s Big Ten feel the pain:
- A higher sales tax on big cars caused sales of big displacement luxury cars drop by more than 50 percent, Xinhua reported.

- FAW’s third quarter net profits are down 4 percent, says Reuters via Gasgoo.

- Ford is slashing output at Changan Ford Mazda, a ménage à trois between Ford, Japan's Mazda Motor Corp and Changan Automobile Co .

- China’s car export numbers are “discouraging” says Gasgoo.

Unfazed by groundless pessimism, China’s State Information Center still forecasts that the country’s auto output and sales will grow by 10%. In a (by Chinese standards) rare expression of “what have you guys been smoking” Gasgoo comments: “It is a phenomenon if China’s auto market can maintain a growth rate by 10% this year amid a global auto market downturn.”

Monday, October 27, 2008

China’s New Deal: Next Time, Try The Train

China decided to drop some serious money on digging the country out of a hole. We’re not talking namby-pamby bailout money for distressed banks and auto companies that may actually go up in price (yeah, sure.) We’re talking real hard asset investment. China’s State Council has approved $300 billion for large scale construction projects to seriously boost economic growth, China Daily reported.

Everybody had been banking on concrete measures to expand China’s clogged roads. But to the abject horror of China’s motorists, the government’s money will be working on the railroad.

"In 1997, we dealt with the Asian financial crisis by stimulating domestic economic growth by investing in the construction of highways.” Zheng Xinli, a senior government policy advisor, said. “This time the money will go on improving the rail network." Using the CIA Factbook's numbers, 1/10th of GDP will be railroaded through China’s economy.

As New Haven, Connecticut, woke up to the Sunday news, shit-eating grins dominated the breakfast tables: This February, Yale University’s college endowment fund had sunk $50 million in the IPO of the China Railway Construction Corp., which is set to get about half of the pie. That deal should keep Yale well endowed.

Of the $300 billion, $180 billion have already been allocated; the rest should be earmarked and spent in no time flat. By 2010, China wants to expand its 48,000-or-so miles of rail by another 8,000 miles. That, my fellow Americans, would be the distance from Anchorage, Alaska, all the way to Peru. And they’ll have that done in 2 years. Right of way? No problem: All land belongs to the government.

Saturday, October 25, 2008

I Told You So: Beijing's Car Sales Going Through The Roof

In a previous missive, I predicted that Beijing's car curbs might actually increase sales. Just as it did in Nigeria 30 years ago. I didn't think it would happen so fast. This is what is posted today in, which just hired me as cheap Chinese labor:

Beijing’s 30% New Car Sales Surge Explained
By Bertel Schmitt October 24, 2008

“Brakes come off auto sales” the semi-official, English-writing Chinese newspaper China Daily headlines today. “Beijing car sales, which account for about a tenth of the national tally, are surging this month after the end of Olympic traffic controls and because of rumors about new caps on vehicle numbers, ” reports the newspaper, citing the head of China’s largest car dealer. Beijing Asian Games Village Automobile Exchange, an 80k unit megadealer in China’s capital, has seen sales increases of 30 percent this month, and there’s still another week to go.

Beijing’s buyers are stampeding back to the showrooms, after half of the cars had been banned from Beijing’s streets during the Olympics. Following the Olympics, a Kafkaesque car ban on Beijing’s byways and highways was instated, driving demand for second cars. Or for two cars at a time. Rumors that Beijing’s city government could limit new vehicle registrations to 100k a year, about a third of the city’s average annual vehicle sales, also unleashed a storming of the showrooms.

“We don’t know how the rumor started or whether it’s true, but it’s certainly working in terms of boosting sales,” said Su Hui, General Manager of the megadealer.

So far, the only city in China which rations vehicle ownership is Shanghai, a.k.a. Gridlock-City. In Shanghai, each month 5k to 6k license plates are auctioned off. Shanghai plates are fetching higher prices than small cars. According to the official news agency Xinhua, the average price of a Shanghai plate is 47,711 yuan ($6253),. Chery’s QQ subcompact, one of China’s Top Ten sellers, goes for 39,800 yuan. Shanghai’s scheme hasn’t done more than boosting the city’s budget: Motorists simply register in other towns.

If America runs out of ideas of how to jump-start the auto business, maybe they could rip that page from China’s playbook. Or not.

Friday, October 24, 2008

Now I've Got Heartaches By The Numbers

Troubles by the score

A few months ago, sitting in a conference of respected (excluding me) Chinese auto journalists, I said: “How many car companies are there really in China? I hear two numbers. 60 and 120. What’s the real number?” They all shrugged their shoulders. As long as 20 years ago, auto makers prophecied that the world would have space for maybe 10 car companies max. Now in China, we can't keep track of them.

How many cars in China? Likewise a mystery. You’ll read numbers between 20 million and 150 million. Most of this is a lack of systems. They simply can’t track yet. Some is lost in translation. The fine nuances of “vehicles,” “motor vehicles,” “cars,” “passenger cars,” “private automobiles” easily turn into roadkill - especially when the translator makes only $200 a month and rides a bicycle to work.

The number I trust this week is 60-some million vehicles-with-more-than-two-wheels in China. That includes some 15 million three-wheelers and low-speed delivery contraptions.

Every day you love me less, each day I love you more

How many private cars? Last February, had two numbers in the same article: “February 29 ( - The total number of private cars in China jumps 32.5% to 15.22 million units by the end of 2007, according to Chinese government statistics released yesterday.” And, in the next paragraph: “By the end of last year, total number of vehicles on roads of China has reached 56.97 million units… Of these vehicles, 35.34 million are private cars.” Shen me? (Polite Chinese for "WTF?")

But the day that I stop countin', that's the day my world will end

Here is another nice one from last year: “Sources from China’s Public Security Ministry said that the recorded number of vehicles in use in China is 150 million in the first half of 2007, of which 53.558 million are autos and 83.548 million are motorcycles.” Hmmm … and the other 12.9 million? Rollerblades?

Be it as it may, China has 1.3 billion people (or 1.5, or 1.6 - nobody knows for sure) The G7 average is 610 cars per thousand people. The US tops the list with 740 cars per 1000 men, women, babies, convicts, and near-dead. (No wonder the market stalls when 3-garage homes go into foreclosure - it’s lack of public parking!)

Using the internationally accepted number of a market nearing saturation with 500 cars per thousand inhabitants, China has room for 650 million cars! Or 750 million. What the heck, a few hundred million more or less don’t matter.

Thursday, October 23, 2008

GM Sends Fuel Cell Equinox On Chinese Vapor Trail

Starting in China’s capital Beijing, General Motors kicked-off their “2009 promotional tour” of China for its Chevrolet Equinox hydrogen fuel cell car. GM will send the Equinox across the world’s fourth largest country to drum up interest for the mid-size crossover SUV that uses the same fuel cell as the elusive Chevrolet Sequel.

China needs no introduction to the technology. China’s first working fuel cell car – based on a venerable Santana 2000 (pictured left) – had been developed as early as 2003 by researchers at the Anting Automotive College of Shanghai’s Tongji University.

The Anting College developed hydrogen fuel cell engines for a number of domestic cars, such as SAIC’s Roewe, the Chery Easter, and SAIC’s VW Passat.

22 hydrogen fuel cell powered Passats (left) had been used to ferry around VIPs during the Beijing Olympics.

In cooperation with Shell, the Anting College even set up a small network of hydrogen gas stations (left) in Shanghai on a trial basis.

The Equinox Fuel Cell is designed for 80,000 km of driving. The system developed in Anting successfully passed a 100,000 km equivalence test (left.)

GM said that in the next two years, they will introduce several Chevrolet Equinox hydrogen-fuel cell cars to China. That’s “cars” – not “models.” Nobody knows what the car will cost, or where in the vast reaches of the middle kingdom the hydrogen stations will be placed. The Chevy Equinox needs a fill-up every 200 miles. Industry observers believe that for the foreseeable future, the car will be what comes out of its exhaust pipe: Vapor.

Wednesday, October 22, 2008

Getting Out Of Dodge. Heck, All Of Detroit.

While billionaires defect Detroit, Chinese women buy new cars with 3 months of breastfeeding.

In a sign that the worst is yet to come, turn-around artists are turning their backs on Detroit’s auto makers. Billionaire Kirk Kerkorian is unwinding his holdings in Ford Motor Co. , after his nearly one billion dollar investment (made when he thought Ford was cheap) lost two thirds of its value and is heading further South. Kerkorian had to pledge 50 million shares of his MGM Mirage Casino to back the credit line he used to buy into Ford. The house is clearly on fire when supposedly recession-proof investments in vice are pawned to prop up auto makers. (However, even vice isn’t what it used to be.)

Stephen Feinberg’s Cerberus, urged by JPMorgan Chase & Co. and Citigroup Inc., which hold a lot of the debt from Cerberus's purchase of Chrysler from Germany's (then) DaimlerChrysler AG in August 2007, is desperately trying to unload Chrysler and foist it upon GM. Cerberus is also talking with Nissan Motor Co. and Renault SA about a linkup, but that’s just viewed as a side show to lend more urgency to the wedding with GM. The Chrysler/GM nuptials have been talked up in the mainstream press as a gift from heaven, as a “win-win” situation full of “synergy” potential. These words rank big in the Dictionary of Corporate Bullshit - the smart make a runner for the door when these words are used. In a particularly apt analogy, our friends over at TheTruthAboutCars liken the Chrysler/GM shotgun wedding to the “Titanic rescuing the Lusitania.” (If Google is an indicator, they should trademark the term.)

“Typical investors, and Cerberus is anything but typical, are running from the automotive industry,'' said Warren Feder, partner at Carl Marks Advisory Group LLC in New York. “It's hard to see any upside with a degree of comfort, and you need that to make an equity investment.''

U.S.A.: Less than 11 million cars in 2009?

JPMorgan Chase & Co, who should have a vested (see above) interest in painting a rosy picture of the auto industry, just did otherwise. U.S. auto deliveries may fall to an annual rate as low as 10 million vehicles this quarter and as low as 11 million next year, Himanshu Patel, an analyst at JPMorgan Chase & Co. in New York, wrote in a report on October 21, 2008 . A few days before, J.D. Power and Associates still had estimated 13.2 units sold in the U.S. for 2009. Patel’s 2009 estimate would be the lowest rate since 1982. The predictions get worse by the day.

China may sell more cars in 2009 than the U.S.

If Patel is right (and, see above, his firm has a lot of hard earned insider knowledge about the auto business,) and if China maintains a – by Chinese standards – rather sedate growth rate , come 2009, the Chinese auto market might be the same size or even larger than the U.S. The China Association of Automobile Manufacturers, had targeted 10 million units for 2008, but with growth slowing in China, the Eastern Empire may not quite make it this year. Next year, unless the sky will fall, 11 million are entirely doable.

U.S. auto industry goes hungry. Babies too.

In the meantime, according to Bloomberg, the exit of Kerkorian, Cerberus & Co. “may leave the U.S. auto industry without new funding just as sales head to a 26-year low.”

Here comes a really disturbing bit of data: "Most consumers are worried about: 'Will I have enough to put food on the table so my family can eat?' Eduardo Castro-Wright, President and CEO of Wal-Mart's U.S. operations told attendees of a luncheon sponsored by Town Hall Los Angeles. His stores see spikes of sales of baby formula when paychecks come in, “suggesting consumers are rushing to buy such necessities as soon as they have the cash,” Reuters reported.

“As the economy worsens, Wal-Mart's customers have increasingly shown signs of living paycheck to paycheck. Wal-Mart's sales typically surge around pay periods at the beginning and middle of the month. Castro-Wright said that spike has become more pronounced as consumers' budgets become more stressed.”

Buy a new car with 3 months of breastfeeding.

Contrast this to China. In the wake of the milk worries, affluent Chinese parents of babies more and more turn to “milk mothers” or “Nai Ma” who breast feed their new-borns if the real mother doesn’t want or can. Baby formula? No, thank you. Or "bu, xie, xie," as they say. They want the real thing for their one child only. In Beijing, a milk mother from the provinces can make between $300 and $1600 a month, with free room and board. A secretary in Beijing starts at around $300 a month, and must use the money to pay for food and shelter.

Back to cars: A family that barely can feed their babies is unlikely to worry about a new ride. A Chinese milk mother can buy a new car for cash with three or 5 months earnings. While the International Breastfeeding Committee of WHO/Unicef recommends breastfeeding for six months, Chinese hospitals recommend a year or more. After a year’s of not really hard work, the milk mother will have two or three cars. Meanwhile, back in the U.S. of A. , parents need parts to keep their cars running, at least twice a month, for a trip to Wal-Mart.
Pictures by epicharmus, Dr. Keats, Brave New Films. Thank you!

Tuesday, October 21, 2008

Doing Business In China? Check Your Website

China had some 200 million Internet users in 2007, and is expected to have 500 million in 2010. If you do business in China, you need to have a website. Without a website, you don’t exist.

But can they read it in China? I’m not talking translating the website into Chinese (which would be a good idea.) I’m talking: Is your website accessible from China at all?

Again and again, friends and business associates send me the address of their website – and often, it cannot be accessed from China. As far as China is concerned, they don’t exist. The site works fine in the U.S. or Europe. It doesn't work in China.

Why is that?

There is something called the Great Firewall of China that filters out objectionable stuff. Could that be the reason?

"No way," my friends say. The stuff on the sites of my friends is benign. Usually auto parts. No reason to filter it out. The truly paranoid say: "They just want to keep out competition." Not so.

At closer inspection, it turns out that my friends' website is hosted with a cheap hoster. At the hoster, the IP number of the website is shared with many other sites. You can find out by using . Now if one of the other sites peddles porn, or sensitive political matters that raise the eyebrows of China’s internet watchdogs, the firewall blocks the IP of the objectionable website – and all the other websites that share that IP are blocked at the same time.

If that happens to you, you are collateral damage.

If you want to do business with China, and if you want your website to be accessible, choose a reputable hoster, best one with a private IP number for your site. Also, have your Chinese friends log into your site frequently to check - another way to drive traffic :)

Monday, October 20, 2008

The Sky Is Falling! China Grows “Only” 9%!

Bloomberg reported today that “China's economy, the biggest contributor to global growth, expanded at the slowest pace in five years as the financial crisis cut demand for exports. Gross domestic product rose 9 percent in the third quarter from a year earlier.”

Economy caught SARS?

To juice up the news, Bloomberg said that “China's expansion was the weakest since the severe acute respiratory syndrome, or SARS, epidemic slashed growth in the second quarter of 2003.”

To old China hands, this conjures up some of the worst memories, when China came to a grinding halt for months, while everybody had to stay home and was allowed to go to the shop once a week with guns pointed at you, worn by soldiers in HAZMAT gear. Can’t get any worse than that.

Only 9% growth?

The New York Times rightly said: "Policy makers in almost any country except China would be delighted with 9 percent growth, particularly given the financial turmoil that was worsening at the end of the third quarter." Well, maybe not: A 9% rise of GDP would make the rest of the world scared that central bankers will raise interest rates to stem off inflation.

Only 9% growth? China simply goes from an unsustainable, unhealthy and inflationary double digit growth to a healthier level.

Sure, export growth in China slowed substantially. It had to. Since the second half of 2007, the Chinese government tried everything to push down exports to a more sustainable level.


- Retail sales in China rose 23.2 percent in September from a year earlier, matching the gain in August and close to the fastest pace in at least nine years.

- Urban disposable incomes for the first nine months rose 14.7 percent to 11,865 Yuan from a year earlier. Rural cash incomes climbed 19.6 percent to 3,971 Yuan.

- The formerly red-hot Chinese light vehicle market (which includes passenger vehicle and light commercial vehicle segments) is expected to slow in 2008, but it still will grow at very healthy rates. J.D. Power expects Chinese light vehicle sales to come in at 8.9 million units in 2008, which would be an increase of 9.7 % compared to 2007.

- Much of the decline in exports had been caused long before the U.S. meltdown. The cause was the appreciation of the RMB, which was actually a reflection of the rapid depreciation of the USD which took place until July 2008. As said, "For most local auto parts makers, the impact on exports brought by the demand slowdown of the global market triggered by the financial crisis will be less than that of the RMB appreciation." It’s just that nobody was looking.

The stock market knew it long before.

The Chinese stock market could crash from 6000 at the beginning of 2008 to around 2000 now without anybody outside the country batting an eye. Since January, the Chinese stock market lost more than 60%, and nobody wanted a bail-out.

The Dollar comes back. The Yuan barely moves.

If anybody has noticed, the USD took a sharp turn and appreciated dramatically since July. Now is this reflected in the USD/CNY currency pair? Have a look at the chart:

Until July, the Yuan pretty much appreciated against the USD as the Euro did. The Dollar went down, the Euro and the Yuan went up.

What happened when the USD started rising like mad, starting in July? The USD/CNY rate barely budged. The EUR/CNY rate did move.

Bloomberg says that the Chinese "central bank has stalled gains by the Yuan against the Dollar since mid-July, protecting jobs in export industries."

Hmmm. The chart says they did just the opposite. When the Yuan should have gone down sharply against the USD along with the other currencies (except the Yen, but that's a different story) the Yuan barely moved.

The chart says that the Chinese central bank may have propped up the Yuan against the US Dollar. China also took other measures to cool down their overheating export machine, such as not refunding parts of the VAT for exports, and actually charging export tax on certain items.

Yuan due for a fall.

Expect the USD/CNY rate to change radically within the next months, latest after the U.S. elections. We expect the Yuan to drop against the USD, the easiest way for the Chinese government to make Chinese exports more attractive. In the first half of 2008, this would have been a rather unpopular move. But now, the world has other problems than watching the CNY/USD currency pair. The New York Times opined: "With the United States heavily dependent on China to buy the Treasury bonds needed to finance a bailout of the American financial system, the Bush administration has stopped criticizing China’s trade and currency policies."
If anyone does complain, the obvious explanation is that in light of the strength of the Dollar, the Yuan must follow suit and go down.

And when the USD will drop when America will crank up the presses to print money to finance the bailout and two wars, the Chinese can keep the USD/CNY level, and make their goods even cheaper in Euro terms.

More toggles to be switched

Likewise, the tax measures designed to dampen exports are expected to be lifted. Sharply lower commodity prices and equally lower transport prices make low wage countries like China even more competitive.

China is the country that keeps the world economy alive. The Chinese have the incentive and financial wherewithal to keep it that way. They have nearly unlimited room to grow, while Western markets are saturated and while especially European and Japanese demographics indicate shrinking markets. Like it or not, out of this recession, China will emerge stronger than ever.

Sunday, October 19, 2008

Chinese Car Exports: A Non-Starter?

For the past years, auto makers in Europe and the U.S. looked to China with hope, and with trepidation. They hoped the booming Chinese market would lift their worldwide sales. It did. They feared the Chinese would export cars en masse, swamping Europe and the U.S. with cheap vehicles. They did not. China didn't ruin Western markets. Western banks and brokerages did.

Weapons of mass destruction.

Nevertheless, red alert was sounded each time a Chinese car appeared at an auto show in Frankfurt, Geneva, Paris, or Detroit. Weapons of mass destruction were deployed to ward off a Chinese invasion: Chinese cars were crashed, and grisly results were published, sometimes coincidentally timed adjacent to those auto shows. An insider close to the matter said: “If you have a lot of money, you can crash a lot of cars. There’s always one crash that looks real horrible. That’s the one you will see on YouTube.”

What you see here is the infamous Landwind test by the German AUTO Club ADAC. The test was rumored to have been under the influence of German auto makers, and that the impact was at a higher speed than necessary. A later test by TÜV confirmed that the Landwind met all mandatory safety criteria according to ECE R94. But the damage was done, sales of the Landwind remained in the doldrums.

This time, the markets crashed.

This year, also quite coincidentally, there were no terrifying crashes of Chinese cars before the Paris Auto Show. Likewise coincidentally, Edmund’s AutoObserver reported from the show: “The era of Chinese car exports may have ended before it even began.”

Only two Chinese auto companies showed up for the show. One was Brilliance, BMW’s joint venture partner in China. The other was the French distributor of Shuanghuan Automobile. Neither garnered a lot of attention.

This time, no cars needed to be crashed. What did crash, were the auto markets. Auto sales in the U.S. were down 26 percent in September. In Japan, car sales are at their lowest level in more than thirty years. European markets are faring poorly.

Chinese new car exports drop.

This was immediately felt in Chinese new car export numbers. August witnessed the first monthly decline over recent years in China's car exports, due largely to shrinking demand overseas. According to the China Association of Automobile Manufacturers (CAAM), China sold abroad 44,400 motor vehicles in August 2008, down 22.18 % from the previous month, or 11.29 % from a year earlier. Analysts see this trend to accelerate as the full impact of the market crash is being felt, and as the cars in the pipeline from China remain unsold.

In 2007, China had exported a total of 612,700 vehicles, up 78.95 % from a year earlier. For the first eight months, the total Chinese auto export value rose 36.5 percent year-on-year. Experts expect a decline for the rest of the year.

Parts fare better.

For auto parts, the picture is not as grim at all. Sure, according to Gasgoo, Chinese parts makers who focused on foreign new car manufacturers, saw their sales “drop significantly this year.”
Manufacturers who target the after-sales market fare much better “with many people preferring to maintain cars rather than buying new ones.” The semi-official newspaper China Daily said: “the US and the European customers' preference for China-made auto parts, which are more competitive in price, provide much better opportunities.”

How to Survive the Great Depression. Again and Again

This auto parts store made the New York Times . The paper made the store an example of how to survive tough times.

A reporter went to the wheat country in northeastern Colorado, in search for businesses that are immune to the slowdown.

He found, Marsau’s, an auto parts supply shop that opened right before the Great Depression in 1928. 80 yeras later, the store is still going strong. “Everybody else quit, or died,” John C. Wray II, the owner of Marsau’s, said to the New York Times.

This store is a perfect example that auto parts are recession-proof. Marsau's survived all depressions and recessions since 1928.

While U.S. new car sales dropped to historic lows, the U.S. after-sales service market maintained 5 % growth in the first half of the year as more and more people preferred to maintain cars rather than buying new ones. This trend will increase dramatically as new car sales drop dramatically.

Saturday, October 18, 2008

Worldwide Auto Sales: The Good, the Bad, and the Downright Ugly.

J.D. Power and Associates, one of the few reliable sources on worldwide automotive data, have released their forecast for 2008 auto sales. Executive summary: It won’t be pretty.

All corners of the world will be affected by the slowdown. But not all corners will see equally dismal sales. The mature and saturated markets will be hit hardest by a sudden lack of appetite for new cars. Emerging markets will continue to grow – albeit at a much slower pace. The after-sales business will profit from people holding on to their cars.

The Good: China.

The formerly red-hot Chinese light vehicle market (which includes passenger vehicle and light commercial vehicle segments) is expected to slow in 2008, but it still will grow at very healthy rates. J.D. Power expects Chinese light vehicle sales to come in at 8.9 million units in 2008, which would be an increase of 9.7 % compared to 2007. Still, the number will be much tamer than the 24.1 % growth achieved in 2007. (The Indian light vehicle market will remain in its infancy. 1.8 million units are expected to change hands in 2008, nearly the same as in 2007. Considering that India has approximately the same population as China, 1.8 million units are pretty much a non-event when measured with a global scale.)

The Bad: Europe.

Light-vehicle sales in Europe as a whole are projected to fall to 21.3 million units in 2008. This would be a rather tame 3.1 % decline compared to 2007. For Western Europe, where markets are more saturated, J.D. Power forecasts a decline to 15.6 million units sold, which would be 7.5 % less than 2007. Eastern Europe will still see growth. Eastern European unit sales are anticipated to be 5.8 million in 2008, a surprising (giving the circumstances) jump of 11.3 % compared to 2007. However, growth in Eastern Europe is also forecasted to slow significantly.

The Downright Ugly: U.S.

J.D. Power and Associates forecasts total U.S. new light-vehicle sales to plummet to 13.6 million units in 2008, a 16 % decline from the 16.1 million units sold in 2007. For 2009, J.D. Power and Associates sees even lower numbers: 13.2 units. J.D. Power says the numbers may be 200,000 lower, depending on how the 4th quarter of 2008 may play out.


J.D. Power doesn’t think that the market will recover anytime soon. Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates, said that “any truly pronounced recovery appears to be more than 18 months away.” And it may get worse before it gets better: “While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse,” Schuster said. “While mature markets are being impacted more severely than emerging markets, no country or region is completely immune to the turmoil.”

No crisis for after-sales.

Like other analysts before, J.D. Power observed that “approximately two-thirds of the decline in retail sales can be attributed to consumers delaying vehicle purchases.” People are keeping their vehicles longer. Keeping their vehicles longer means more parts and labor are needed to keep the vehicles running. Buying a new car or even a used car can be delayed. But if the brakes fail, it’s either buy new ones or walk. One of the few recession proof segments in this collapsing economy appear to be parts and services.

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