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.