China's love affair with Detroit's cars has begun to fade

Through all the recent months of bad news, Detroit could always offer itself one consolation: Hey, there is always China.
China's love affair with the automobile gave North American automakers some of their strongest overseas sales, cushioning them from the effects of the downturn at home. Now, that affair has begun to fade like a teenaged crush, undermining Detroit's hopes for revival.
Automobile sales in China grew by just 6.7 percent in 2008, the official Xinhua news agency reports. That is still much better than the precipitous drops recorded by automakers in the North American market. But after three years of growth exceeding 20 percent, it is a disappointment for carmakers such as General Motors Corp. and Ford Motor Co, which have invested billions in China in hopes of unstoppable sales acceleration.
"Those companies are making the most of their profits on the sales growth they have seen in China," said Chris Hopson, a market analyst for IHS Global Insight. "As we see a deflating market here, they were expecting some of the slack to be taken up over there. Is it crippling? I don't know. But it certainly won't help them with any turnaround."
The growth of China's car market in the past few years has been stunning. As hundreds of millions of Chinese rose out of poverty and strived to join the ambitious new middle class, many bought a car as the ultimate symbol of arrival.
Drivers purchased 8.79 million vehicles in 2007, making China the world's second-largest auto market after the United States.
The scope for further growth seemed limitless. China still has just 30 cars per 1,000 people, compared with 900 in the United States. An ambitious construction program has laced the country with broad new highways begging to be driven.
But in the middle of last year, sales began to soften when higher fuel prices and new emissions standards for commercial vehicles kicked in. China's economic situation has worsened considerably since then as demand for its exports, the engine of it economy, slackened with a slowing world economy.
IHS Global Insight is forecasting sales growth for vehicles of just 4.8 percent this year. GM's Nick Reilly, the company's Asia-Pacific boss, said industry-wide sales could fall as much as 10 percent in the first half of this year before continuing "robust growth." He told an industry event in Detroit yesterday that he still expects sales in China to grow slightly this year to about 9.5 million vehicles.
Foreign automakers sell seven out of every 10 cars purchased in China, so the health of its car market has a strong influence on their fate. GM now makes 65 percent of its sales outside of North America, mainly because of the car boom in emerging markets such as Brazil, Russia, India and China.
Despite the recent downturn, Detroit still has high hopes for those markets. GM president Fritz Henderson said yesterday that emerging markets such as China should recover more quickly than North America and other developed markets once the worldwide economy begins to come back from recession.
Other foreign automakers are planning big investments in China. Toyota is expanding a factory in Sichuan province and Nissan is opening a new factory in 2010.

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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