It has been a wearying few months for the world’s carmakers when it comes to the Chinese car market. Once touted as the cure-all saviour of the world’s car manufacturers, stymied as they were by growthless European and US markets. The boundless appetite among China’s emerging and substantial middle class seemed to offers a panacea for all car-making financial ills.
And then... While China was, is and probably shall be a lucrative market for western and Japanese carmakers, it has not been an easy ride. Copycat local carmakers have been creating havoc (just ask Jaguar Land Rover and BMW) and even for the most fashionable carmaker on the planet the Chinese market isn't automatically easy going (just ask Tesla).
Now we have to deal with the fallout from the dramatic stock market plunge in China in recent few days. No matter how many analysts tell us this was a necessary correction in a market that had become vasty overheated, there will be consequences. China’s stock market, contrary to the usual practice in the West, comprises 80 per cent private individual investors. Institutional investors such as banks, funds, and companies make up just 20 per cent, which means this crash has wiped out not just a lot of corporate worth but also a lot of individual wealth. That’s a lot of Chinese people who now may not be able to afford a new car this year.
It comes too on the back of recent moves by the Chinese authorities to clamp down on what they perceive as too much high-rolling flashiness in China’s economy. Citizens have been exhorted to be more humble in their purchases, to buy locally-made products and to dial down the bling. The result has been a distinct drop-off in sales of some luxury brands, with Jaguar Land Rover especially feeling the pinch lately. Western carmakers dropped their prices, significantly in some cases, to try to bring customers back but the results have been patchy at best.
So, should the carmakers consolidate their positions in China and look elsewhere? The elsewhere bit is the tricky part. Russia, once considered potentially as lucrative a market as China, is effectively shut down now, crippled by EU and US sanctions over Ukraine and with little sign of Vladimir Putin attempting to defuse the situation. Western carmakers are shuttering factories and trimming back sales operations in an effort to minimise their exposure to the market free-fall.
North Africa offers some potential but it won't be fully realised for some time. According to think tank Eos Intelligence "the region's favourable demographics – a young and rapidly growing population, increased urbanisation and rising income levels are attracting many global automotive players. . . Forecasts from Opec suggest car ownership in the Middle East and Africa will nearly triple to 66 million by 2035, compared with 23 million in 2010, making it among the fastest-growing markets in the world over the next few decades."
Even with the turmoil in Libya and Syria, North Africa could still make for a potential saviour if China falls off the cliff.
The chances are that it may not be needed. Daimler-Benz, for instance, is confident the Chinese market will weather this storm and demand for new cars will remain high. "I am still positive, subject to some stabilisation of the stock market," said Mercedes's head of China operations, Hubertus Troska.
Perhaps the Chinese market really is just too big to fail. Then again, we heard so many similar tales in 2008, didn’t we?
