A General Motors (GM) vehicle in Beijing.

TEXT OF STORY

BOB MOON: This year, China beat out the U.S. as the largest market for cars. Sales have been stacking up like a Beijing traffic jam -- for a gain of upwards of 30 percent in China this year -- while demand elsewhere has been sluggish. Next week, though, Chinese buyers of small vehicles will lose a big government tax incentive. On top of that, Beijing's city hall is cutting the number of license plates issued to reduce congestion.

What might that mean for American automakers
angling for a piece of the action in China?
Marketplace's Alisa Roth has been looking into that.


ALISA ROTH: Of the Big Three U.S. automakers, GM is the one that's most likely to feel the changes because it does much more business in China than Ford or Chrysler. But even the combined effects of the tax increase and the driving restrictions in Beijing probably won't do too much harm.

Nicholas Lardy studies China at the Peterson Institute, which is a nonpartisan think-tank. He says at some point, the growth rate for Chinese car sales will probably slow down. But even with all the recent growth, only a small percentage of Chinese households own cars. So the market still has plenty of potential.

NICHOLAS LARDY: They could have fairly significant growth for many years to come, if the underlying growth of the economy continues to be very robust and family incomes continue to rise. In other words, there will be more and more families every year who reach an income level in which they could afford to buy a car.

GM is predicting its sales will go up 15 percent next year. Volkswagen is predicting increases of 10-15 percent.

Mary Ann Keller is an auto industry consultant. She says what's happening is that China's car market is finally normalizing after the government artificially pumped it up for years. She says she doesn't see a lot of immediate risk for foreign carmakers in China.

MARY ANN KELLER: The risks for them are probably five, six, seven years from now when local Chinese companies get their act together and make competitive cars.

And right now, some people say China's decision to get rid of the tax incentives on small cars could have a silver lining for companies like GM and VW. It'll make the prices for their mostly larger cars more competitive.

I'm Alisa Roth for Marketplace.

Comments

I agree to American Public Media's Terms and Conditions.