As global automakers showcase their latest creations at the Shanghai Auto Show beginning April 22, they find themselves in an increasingly disadvantaged position in the world’s biggest automobile market.
General Motors Co. will bring its Cadillac CT6 flagship sedan, and Volkswagen AG will unveil the new Audi Q7 luxury sport utility vehicle in Shanghai. But behind the pomp and circumstance, foreign automakers operating in China are bracing for a perfect storm of declining sales growth, punitive regulations, stiff competition from domestic automakers, and a burgeoning gray market threatening their distribution channels.
China’s total auto sales increased 3.9 percent in the first quarter, a letdown compared to the 9.2 percent gain recorded in Q1 of 2014, according to official statistics. A 20 percent decline in commercial vehicle deliveries, due to sagging manufacturing growth and negative macroeconomic headwinds, was largely to blame.
Passenger vehicle sales increased 9 percent during Q1, largely driven by China’s domestic automakers, which saw a 21 percent jump in vehicle sales. Growth for foreign brands stalled, up a dismal 1 percent.
Lower Sales Targets
Entering 2015, nearly every foreign automaker lowered his or her growth targets compared to 2014.
China recently reported first-quarter economic growth of 1.3 percent, the slowest in two decades on an annualized basis. Independent estimates were even lower, as U.K.-based Lombard Street Research pegged Q1 real GDP at a 2.1 percent decline. The negative economic headwinds and regime leader Xi Jinping’s ongoing anti-corruption campaign are both detrimental to auto sales growth.
BMW last week lowered its second-quarter production and sales targets in China, according to memos to its dealers obtained by the Wall Street Journal. The company did not disclose the amount of the revision, but in BMW’s last public forecast released in March, it expected upper single-digit sales gains in 2015, far lower than the 17 percent growth last year.
Volkswagen reported a 2 percent sales gain in Q1, but closed out the quarter with a disappointing decline of 0.6 percent in March. Audi, its luxury marque, saw a sales increase of 7.1 percent for the quarter. Both results were significantly lower than 2014, when Volkswagen and Audi reported growths of 14 percent and 21 percent, respectively, in Q1.
