China Vehicle Sales Seen Slowing After Pollution Chokes Cities

Jan 09, 2014 11:01 am ET

Jan. 10 (Bloomberg) -- China’s main car association forecast that the world’s biggest automobile market will see slower growth this year as anti-pollution and austerity campaigns spread.

China, which in 2013 became the first country to see domestic sales surpass 20 million units a year, will see deliveries rise as much as 10 percent in 2014 after last year’s 14 percent growth, the state-backed China Association of Automobile Manufacturers said yesterday.

While China’s motorization has been a boon for foreign automakers -- all the major ones saw record sales in the country in 2013 -- pressure is building on the government to step in as pollution chokes residents and traffic congestion turns roads into parking lots. Sales of luxury goods have been hit since Xi Jinping took over as Communist Party chief in November 2012 and started a campaign to rein in lavish spending.

“Vehicle sales in China are facing pressures brought on by environmental protection, traffic jams and more cities limiting purchases,” Shi Jianhua, a vice secretary general at the auto association, said in Beijing. “Demand for imported luxury vehicles will surely decline as the official frugality campaign spreads beyond the government and affect companies and individual consumers.”

Bumper Year

The increasing number of cars has come at the expense of air quality, leading the nation’s industry ministry to warn last month that auto sales may slow this year as more cities cap the number of new autos to meet central government targets for reductions in air pollutants.

“As more and more big cities put in place restriction measures, automakers will have to count on smaller cities and inland areas for growth,” said Harry Chen, a Shenzhen-based analyst with Guotai Junan Securities Co. “Local automakers will really need to bring on their A-game to compete with foreign joint ventures to survive.”

China, the world’s biggest carbon emitter, is home to some of the world’s most polluted cities, with smog levels that can surpass World Health Organization safety thresholds by almost 40 times. Outdoor air pollution was found to cause lung cancer and linked to an increased risk of bladder cancer, a WHO agency said last month, rating it as a carcinogen for the first time.

The northern Tianjin municipality began restricting its car population this year, joining Beijing, Shanghai, Guangzhou and Guiyang in imposing vehicle quotas.

China’s ‘Airpocalypse’

Shanghai, which is considering a congestion charge for motorists, last month experienced record levels of the lung- constricting smog that teary-eyed Beijing expatriates have come to call the “Airpocalpyse.” In Xi’an, the former imperial capital known for its terracotta warriors, pollution soared to 38 times the WHO threshold.

To combat air pollution, China’s State Council, or cabinet, released a national plan in September that called for a 15 percent to 25 percent reduction in particulate matter by 2017 in the three key manufacturing regions anchored by Beijing, Shanghai and Guangzhou.

Vehicle emissions now account for 20 percent of PM2.5 fine particulate matter that pose the greatest health risks because they can penetrate deep into the lungs, according to the official Xinhua News Agency.

Still, the 23.74 million to 24.18 million in vehicle sales that the auto association is projecting for 2014 means Toyota Motor Corp., General Motors Co. and Volkswagen AG may all continue to deliver a record number of cars in China.

GM’s Lead

GM, which counts China as its biggest market, saw sales climb 11 percent to 3.16 million in the country last year. Though the Detroit-based carmaker outsold all foreign automakers in China for eight straight years, it may lose that lead when Volkswagen reports 2013 figures later this month. The Wolfsburg, Germany-based company surpassed its previous annual record by selling 2.96 million vehicles in the first 11 months.

Ford Motor Co., which got a late start in China, benefited from the popularity of its Focus car, helping the company post the biggest growth among major foreign automakers. China deliveries surged 49 percent to 935,813 units, outselling Toyota on annual basis for the first time.

Toyota, the global leader in auto sales, fell to No. 6 among foreign automakers in China, though Japanese carmakers rebounded from the backlash of 2012, when a territorial dispute over a group of uninhabited islands led to violent protests that prompted Chinese consumers to shun Japanese-branded cars.

Toyota’s sales climbed 9.2 percent to a record 917,500 units in the country and forecast deliveries will climb to more than 1.1 million this year. Nissan Motor Co. and Honda Motor Co. also sold a record number of vehicles after posting declines in 2012.

Exports Slump

By contrast, Chinese brands saw their combined market share at home fall 1.6 percentage points to 40.3 percent, according to the auto group. Exports dropped 7.5 percent, the first decline in five years, because of unstable overseas demand and insufficient competitiveness, it said.

Ford’s Focus was the best-selling car last year, while Great Wall Motor Co.’s Haval topped SUV sales.

Last year’s sales of passenger vehicles, excluding buses and commercial trucks, climbed to 17.93 million -- or 15 percent more than the U.S. auto industry -- and may increase 9 percent to 11 percent this year, according to the auto association. The 21 percent increase in December was faster than estimated, according to Ole Hui, a Hong Kong-based analyst with Mizuho Securities Asia.

--Tian Ying. Editors: Chua Kong Ho, Young-Sam Cho