China is 2nd largest auto market and 4th largest maker

February 25, 2006

In January, passenger vehicles sales in China increased 73% to reach 418,900 vehicles.

• Combined sales of the top five Chinese automakers First Automotive Works Corp, Shanghai Automotive Industry Corp, Chang'an Motor Corp, Dongfeng Motor Corp and Beijing Automotive Industry Corp reached 360,000 automobiles in January this year, accounting for 68% of total sales.
• Ford, which is a joint venture with Chang’an, sold 33,511 units, up 121% year over year,
• Chery Automobile sold 22,505 units, up 111 %,
• Geely Automobile sold 20,282 vehicles, up 96%.

The China Automobile Association forecast 2006 auto sales will grow 15% to 6.6 million autos, following a 14% increase in 2005. This would make China the second largest auto market after the U.S.

China is now the fourth largest producer of automobiles, after the U.S., Germany and Japan. It has overtaken Korea and France. In 2005, China's vehicle output grew 12.6% to 5.7 million units over the previous year, according to statistics from the China Association of Automobile Manufacturers.

In 2005, GM and its Chinese joint ventures sold 665,390 vehicles, up 35% from 2004. Its market share grew to11.2%, up 1.8 points. Ford sold 220,000 cars in China, which is 4% of market share. In 2005, Chery sold 189,000 units but is putting out six new models, and is expected sell 281,000 auto in 2006, putting it ahead of Ford.

Chinese manufacturers are planning to expand their exports, and are building plants in Eastern Europe. However, profit margins are down as automakers are forced to compete on price.

What it means:
The U.S. auto industry is one of our most important exports, but has been struggling over the past few years. althought their joint ventures in China are very successful, the Chinese may use them to learn automaking, and then to compete with their joint venture partners. If history with other industries are any indication, China’s entry into car manufacturing could provide tough competition, not only in China but in every market China decides to enter.

Action steps:
If you haven’t already, talk to your financial advisor to make sure you are minimally exposed to U.S. automobile stocks in your portfolio.

Source:

People's Daily Online, 2/4/2006

People's Daily Online, 2/17/2006

GM press release, 1/5/2006
Ford press release