China CLOBBERS The US In Auto Sales, Becomes GM’s Nirvana (Unless You Have To Breathe)

The air in Chinese cities can get so bad that the whole world ends up talking about it. Photos of high-rise buildings disappearing into toxic muck bounce around the internet. Inefficient, badly designed coal-fired power plants provide about 80% of the electricity for 1.3 billion people and the manufacturing hub of the world. Together with industrial plants and heating systems, they burn more coal than the rest of the world combined. They were considered the primary source of the pollution. But this has changed. Increasingly, cars are fingered as culprits.

“Air pollution has become China’s biggest health threat,” wrote Yang Jian, managing editor of Automotive News China. He cited The Lancet, a medical journal that had estimated that 1.2 million people had died of pollution-related ailments in 2010.

The largest cities, where superhighways have a nasty habit of becoming parking lots, have started to limit new registrations in an effort to slow down the progression of the catastrophe. But it’s going to get much worse because car sales are booming, and the money is out there to be grabbed, and all global automakers look to China as the place to be, and for many US, European, and Japanese component makers, it has become the center of operations.

Though the government is taking the issue seriously and is doing a million things to get the fiasco under control, it remains unclear what exactly people will breathe ten years from now.

Because when it comes to cars, there is no slowdown in sight. In 2013, China became the first country ever to sell more than 20 million new cars, trucks, and buses – and not just barely more, but a bunch more, namely 21.98 million, up 14% from 2012, according to the China Association of Automobile Manufacturers (Automotive News China).

Sales of new light vehicles jumped 16% in 2013 to 17.93 million. Neither the US nor the 27-member EU has ever sold this many units.

By contrast, in the US, sales rose 7.6%, to 15.6 million vehicles (Motor Intelligence). The absolute US record – and until last year the world record – was 17.35 million vehicles, set in 2000 (NADA). In the 27-member EU, sales fell about 2.5% to 11.8 million light vehicles (my estimate, the ECEA will publish full-year figures Jan. 16), down 23.5% from its all-time record in 2007 of 15.5 million units.

OK, it’s like comparing apples and mandarins. The Chinese figures are wholesale deliveries, so shipments by manufacturers to distributors or dealers. The US figures are dealer-reported deliveries to retail and fleet customers. The EU figures are new vehicle registrations in each country. Each is a step further down the road in the ownership process, and games are being played by everyone.

In China, automakers are encouraged to engage in channel stuffing. They’ll crank out cars and dump them on distributors and dealers until they suffocate, and these cars sitting on lots somewhere all count as sales.

In the US, at the end of the reporting period, dealers force every deal, even mind deals, into the pipeline to make quotas and blow the door handles off of other dealers. But then financing falls through, the trade-in suddenly has a salvage title, the down-payment check bounces, or the wife hates the color, and she is standing right there in the middle of the showroom, screaming, and the deal unravels and has to be deducted from the reported numbers, but that happens in the new reporting period.

These games are details. But the global shifts are momentous.

Bailed-out GM, lovingly called Government Motors until recently, sold 3.16 million new vehicles in China, up 11% from 2012. But for the first time in years, GM wasn’t number one. Volkswagen edged it out with 3.27 million units. In the US, GM sales increased 7.3% to 2.8 million. And in the EU, sales dropped 5.5% to less than a million. China has become GM’s largest market! And in a few years, GM might sell more cars in China than in the US and the EU combined. It’s the payoff from having invested untold taxpayer billions in the largest market in the world.

For Ford, number-three automaker in China, deliveries soared 49% after having stumbled in earlier years while GM was making hay. Based in part on the strength of the Focus, China’s bestselling car in 2013, Ford sold 940,000 units, ahead of Toyota, which had been caught in the middle of gratuitous Sino-Japanese saber-rattling. In the EU, Ford sales fell 4.6% to about 900,000. In the US, sales jumped 10.8% to 2.5 million, but the way China sales are ballooning, it won’t be long before….

German automakers, too, are making China their number one market. Volkswagen, whose Audi unit was the top-selling luxury car brand, BMW, Daimler… they’re all plowing billions into China. Even Porsche, whose largest market is still the US, expects that this honor will shift to China in 2014 or 2015. Even the listing French automakers are looking for salvation in China.

Optimism among automakers about China is beyond exuberance. They’re seeing that unless China experiences a hard landing, or any landing, its 1.3 billion people will continue to clamor for their own set of wheels. Double-digit sales growth rates are forecast for years to come. No one knows where to park these cars, and where to drive them, but they’re going to get built.

The vast majority of vehicles sold in China are assembled in China. There is a near-daily drumbeat of announcements by global automakers of new plants being planned or opened, or of existing plants being expanded. When it comes to cars, China is where the music plays.

All of these plants have to be joint ventures with Chinese companies that then hope to get, steal, or otherwise obtain the latest technologies to build competitive cars and components on their own. But the equation hasn’t worked out yet. While there are some successes – for example, Great Wall’s Haval was the bestselling SUV in 2013 – dozens of Chinese brands, many of them state-owned, are teetering. One of the many things Chinese consumers have become at lightning speed is … discerning car buyers. So the market share of all Chinese brands combined dropped by 1.6 percentage points to 40.3%.

If they have trouble selling cars in China, maybe they’ll have more luck unloading them in the US, where the grass is apparently greener. Geely, which owns Volvo, has been predicting since 2005 that it would enter the US market. So has Chery. Great Wall has similar ambitions. But BYD, an electric vehicle, battery, and solar-panel maker in which our favorite Uncle Warren Buffett, via Berkshire Hathaway, owns a 9.9% stake, is more advanced. It actually has plans to offer four models in the US by the end of 2015, according to Stella Li, the Senior VP of BYD’s US operations.

BYD already has a foothold in the US. A rotten one. Its name stands for “Build Your Dream.” Maybe that’s what they’re trying to do in China. Here, with their electric buses, they’re building a nightmare of broken promises, falsehoods, and design flaws, funded by American taxpayers. And they imported Chinese workers and paid them $1.50 per hour in California. Read…..American Boondoggle Meets Chinese Methods

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