german automakers feel pinch from chinese slowdown
Last Updated : GMT 08:21:11
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German automakers feel pinch from Chinese slowdown

Arab Today, arab today

Arab Today, arab today German automakers feel pinch from Chinese slowdown

Automobile
Frankfurt - AFP

The slowdown on the Chinese automobile market, the world's largest, may be affecting the entire industry, but will hit German makers the hardest given their strong presence there, analysts said.

At the IAA auto show in Frankfurt, which opened to the press on Tuesday and will invite the general public from Saturday, German companies such as Volkswagen, BMW and Mercedes have the biggest stands, generally dwarfing those of their foreign rivals.

But the impressive displays cannot hide the difficult position they find themselves in, despite the new dynamism of cars sales in Western Europe and the United States.

"The golden years are over in China," said Stefan Bratzel, director of the Center of Automotive Management (CAM).

While car sales practically trebled in the world's number two economy to 23 million units between 2007 and 2014, they are projected to grow by just 35 percent between 2014 and 2021, according to forecasts by consultants AlixPartners.
Gone is the era of double-digit growth rates: after 14 percent in 2013 and then 7.0 percent in 2014, market experts are projecting growth of "around three percent" this year.

"The normalisation of the Chinese market was expected," said Elmar Kades at AlixPartners.

But a slowing economy coupled with falling stock markets are putting additional brakes on sales of foreign-made cars in China.

And German companies stand to feel the pinch the most, since they have long been present in China and earned huge profits from the explosion in demand there in the past.
"For years now, rivals could only see the tail-lights of their German competitors. But the air is getting thinner for them, too," said Peter Fuss, auto expert at EY.

"Their strong dependence on the Chinese market could now be seen as an Achilles' heal," Fuss said.
China represents more than a third of their global sales for German heavyweight Volkswagen.

That is a similar proportion to that of US rival General Motors.

But the two are not equally placed when it comes to how they will cope with slowing demand.

German expert Ferdinand Dudenhoeffer said that makers of cheaper, more affordable cars will fare better than their higher-end rivals.

And GM with its inexpensive Baojun is therefore in a better position than the German giant, which owns Audi, Porsche and Skoda.

At the end of July, VW -- which has overtaken Toyota as the world's number one carmaker -- scaled back its sales targets given the situation in China.

Dudenhoeffer predicted that the premium sector, dominated by German brands such as Audi, BMW and Mercedes-Benz, would see stagnant sales in China this year and a decline of four or five percent in 2016.
Mercedes-Benz, which is owned by Daimler, is still something of an exception.

For a long time it trailed behind rivals Audi and BMW. But a range of new products enabled it to notch up growth of 28 percent in China during the period from January to August.

By contrast, the other two are hurting, with Audi sustaining a drop in sales of 4.1 percent in China in August, and a drop of 0.8 percent in the first eight months.

BMW saw its sales fall by 1.4 percent in August, but managed to clock up a modest 0.9-percent increase in sales in the first eight months.

- Brave face -

Nevertheless, German carmakers were trying to put on a brave face at the IAA.

"Growth in China has slowed, without doubt. But I believe demand for mobility will remain very strong," said Volkswagen CEO Martin Winterkorn.

BMW chief financial officer Friedrich Eichiner agreed, saying that "despite the current development, China still has substantial growth potential".

"We knew it couldn't go on for ever. It was clear that we wouldn't always see high double-digit growth," Eichiner said.

With just 70 cars for every 1,000 people in China, compared to 500 for every 1,000 in Germany, there is still substantial potential for growth in the medium and long-term, analysts said.

"It remains the most important car market in the world," said the head of the German automakers' federation VDA, Matthias Wissmann.

"German makers continue to command a strong position. The goal is to hold on to that position."

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