Auto sales in China are slowing and may fall for the first time in more than a decade, undercutting one of the few growth markets for carmakers like General Motors Co. and Ford Motor Co., according to consulting firm Alix Partners.
The U.S. automakers expanded last year to capitalize on long-term growth and are now wrestling with a softer market, AlixPartners said in a study released Wednesday. Carmakers won’t get much relief in China until sales rebound because, even if the market grows this year, prices are under pressure, according to the study.
China has gone from being the auto industry’s gold rush to being just like any other market, with slowing growth, pricing battles and some newfound ups and downs. Carmakers will have to realize that rampant expansion is gone, said John Hoffecker, head of the firm’s global automotive practice.
“The growth rates are slowing down,” he said in a telephone interview. “The question is, what will happen to pricing and profits? China is a stronghold for GM and many others.”
Ford didn’t immediately respond to calls about seeking a response to the AlixPartners study. Ford boosted its carmaking ability by about 30 percent in 2014, as GM’s increased 20 percent, according to the firm.
In July, GM said it will invest $5 billion in new models for emerging markets, including China. Even with the current malaise, GM projects emerging markets to account for 55 percent of sales growth through 2030. China will generate 33 percent and mature markets will provide just 12 percent of additional sales, company President Dan Ammann said.
GM has managed to keep profits in China by pushing sport utility vehicles and luxury cars from Cadillac. The Detroit-based automaker reported in July that second-quarter equity income from China joint ventures rose to $502 million from $476 million a year earlier.
Still, GM’s sales in China have fallen in four of the past five months, including a 4.8 percent drop to 248,815 vehicles in August. For this year’s first eight months, the deliveries have risen 2.3 percent to 2.2 million. In July, the company reduced its estimate of industrywide sales growth for the year.
Ford’s joint ventures in China contributed $411 million to pretax profit in the second quarter. Sales in China fell 3 percent to 79,608 vehicles last month and are down 1 percent to 700,196 for the year through August, the Dearborn, Michigan-based company said Tuesday.
Even with the slowdown, China will continue to be a smart place to invest, with growth going forward, Hoffecker said.
China’s car market grew 19 percent a year from 2005 to 2014. AlixPartners estimates that sales there will grow 4.1 percent a year on average until 2018 and 2.9 percent annually until 2023.
That’s still a pretty good place to do business, said Kevin Tynan, auto analyst for Bloomberg Intelligence. China will still buy more than 20 million cars this year, compared with more than 17 million in the U.S., he said.
“Even in contraction, they will still be in the ballpark of 20 million units,” Tynan said. “That’s a lot of vehicles.”