Throttling Back

Car Sales Slow as Global Crises and Chinese Investigations Brake Demand

  • Why it matters

    Why it matters

    Worldwide demand for cars and industry profits are both weakening amid crises in Ukraine and other areas.

  • Facts

    Facts

    • Some 36.6 million vehicles were sold worldwide in the first six months of 2014, up 5 percent.
    • Growth for the full year is expected to be 2.6 percent below earlier projections.
    • BMW announced price reductions on about 2,000 spare parts by an average of 20 percent in China.
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As car sales slow, German carmakers are tweaking their export strategies. Source: Bloomberg
As car sales slow, German carmakers are tweaking their export strategies. Source: Bloomberg

 

Share prices have fallen for weeks and economists almost daily issue disappointingly dark forecasts as the automobile industry faces weakening demand around the world.

While 36.6 million vehicles were sold worldwide in the first six months of 2014 – a 5 percent increase compared with the same time period last year – growth for the full year is expected to be about 3 percent, which would mean a total of 73.45 million. That’s a drop of 2.6 percent from earlier projections of 75.9 million vehicles.

“Worldwide demand for cars and industry profits are both weakening,” said Ferdinand Dudenhöffer, director of the Center for Automotive Research at the University of Duisburg-Essen.

The rosier outlook was made before the full impact of the numerous global trouble spots had emerged. Since then, the conflicts in Ukraine and the Gaza Strip have flared, Argentina teeters on the brink of bankruptcy and Japan’s economy is slowing. If not for those crises and others, worldwide sales growth likely would have been better than 4 percent over 2013, generating additional “growth in production, exports and domestic employment,” said Mathias Wissmann, president of the German Association of the Automotive Industry.

Making matters worse are new investigations of foreign automobile manufacturers launched by the National Development and Reform Commission, a Chinese government agency that regulates prices. Munich-based BMW recently announced it is reducing prices on about 2,000 spare parts by an average of 20 percent in China, which follows previous price cuts on another 3,300 parts.

“Keeping out of the China business artificially is certainly the wrong approach.”

Ferdinand Dudenhöffer, Director, Center for Automotive Research

China’s propensity for protectionism means “development is therefore difficult to predict,” Mr. Dudenhöffer said.

In the long-term, he said, German manufacturers, in particular, need to rethink their China strategy. By the end of this year, one out of every four vehicles manufactured in the world will be sold in China. “That will make the business of automobile manufacturers and their suppliers increasingly unbalanced,” Mr. Dudenhöffer said, adding that China would constitute a cluster risk for the industry.

Mr. Dudenhöffer believes automotive companies – for their own protection – should uncouple their China operations more clearly from their overall business. They should create stronger independence for the “China” and “non-China” market blocks.

“However,” he said “keeping out of the China business artificially is certainly the wrong approach.”

 

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