General Motors

Mainland car sales growth expected to slow

PUBLISHED : Saturday, 05 January, 2008, 12:00am
UPDATED : Saturday, 05 January, 2008, 12:00am

Sales remain firm, but rising interest rates, higher oil prices put pressure on consumers

Rising interest rates and high crude oil prices put pressure on mainland vehicle sales during the fourth quarter, but figures remained strong.

Official numbers for mainland vehicle sales are yet to be released. But industry watchers said overall sales would reach 8.7 million units for last year, exceeding a previous estimate of 8.5 million units and representing a rise of 20.5 per cent year on year.

However, unofficial industry feedback showed that sales growth in November and last month had slowed slightly, said Yale Zhang, director of Greater China vehicle forecasts for CSM Worldwide.

'Possibly, stricter credit in the money markets could be a factor, especially since a growing number of consumers will rely on loans to buy cars in the future,' he said.

General Motors agreed.

'We have seen a slowdown in the rate of growth in the last quarter, as the government tightened credit,' said General Motors China managing director Kevin Wale in a global conference call yesterday.

According to Fitch Ratings figures, about 20 per cent of car buyers, or more than one million consumers, will take out loans to finance their purchases.

Analysts said that compared with Japan and the United States, where 50 per cent and 90 per cent of total car sales, respectively, relied on individual financing, the mainland was only at a preliminary stage.

'However, I don't think rising interest rates are the only reason for the slower growth,' said industry analyst Matthew Kong at Fitch Ratings in Beijing. 'Higher than expected growth was recorded in the fourth quarter of 2006 and that could provide a larger base for comparison.'

Global carmakers such as General Motors and Ford Motor have already tapped the huge growth potential of the mainland car loan market.

GMAC-SAIC Automotive Finance, an arm of General Motors' joint venture with Shanghai Automotive Industry Corp (Group), was the first institution to launch car loan-backed securities on the mainland.

Ford, a latecomer to the world's second-largest car market, expanded its retail financing business there in 2006. The company sees the sector as a key driver of its strategy.

In terms of sales, Shanghai General Motors posted growth for last year of 22 per cent to 500,308 vehicles. The company will invest US$1 billion on the mainland annually to develop engines, production facilities and after sales services.

'But General Motors will definitely face a tougher challenge this year,' Mr Kong said. 'Volkswagen, General Motors and Toyota are the top three global carmakers in the mainland. Among them, General Motors unfortunately performed worse than the other two, though it also had robust growth.'

In October, Germany's Volkswagen lifted its sales target for last year to 900,000 units from 800,000.

Japan's Toyota Motor also raised its mainland sales target to 700,000 vehicles for this year from a previous estimate of 500,000 units, up 40 per cent, with its best-selling Camry leading the way.