China has seen a recent boom across its stock market, which was followed by a major free fall – all part of the economy mathematics, but for automakers this could be the first pothole in a treacherous road that seemed not long ago smooth as silk.
During the past two decades, China has been the auto industry’s Eden, a promised land of honey and milk – translated into sales and dollars. With 1.4 billion inhabitants, a rising middle class and forecasts of deliveries jumping to 75 million vehicles by 2030, companies made all the right plans, save for the contingency strategies. America’s GM and Germany’s Volkswagen AG were among the first global automakers to profit handsomely from setting up joint ventures – GM now counts on China as the main market around the world and Ford – a late comer in the war – already has half of North American sales. “Growth in auto sales is going to slow, in part because of income inequality,” comments Linda Lim, professor at the University of Michigan’s Ross School of Business. “In the beginning (automakers) could tap the people who can afford to buy. Now the automakers are going to have to appeal to people who have less income and these are the people who have lost the most in the stock market,” she said, after spending years studying China’s incredible economic surge during the past 25 years.
“The plunging stock market is essentially a meat grinder, shredding money meant for buying cars,” commented Cui Dongshu, secretary-general of the China Passenger Car Association in an interview with Bloomberg, recently. Before the end of the month GM will update on the second-quarter financial results and they could show us a glimpse of what sort of impact growth – or lack thereof – has on the automakers relying on China.