Auto Industry

China enters top gear

The nation’s auto demand accelerates, while the rest of the world’s stalls

China enters top gear

London cab escapes the UK recession in Beijing

While one industry struggles to avoid going bust, another just seems to be going gangbusters.

In North America, car sales continue to slump, even if the Economist magazine, in a rather droll take on the June US car sales data, thinks it may have detected the first signs of the “green fumes” of recovery.

It is talking about data that indicated the slowest year-on-year decline since September last year (or Before Lehman – in financial crisis chronology).

Few of the US carmakers will be chortling at the word play, as it seems pretty forlorn to trumpet a 31% slump in sales as a hopeful sign.

But at least the newly formed GM Co has now emerged from bankruptcy proceedings. It will be hopeful of more ‘good news’ now that the federal “cash for clunkers” scheme is underway too.

Compare the desperation in Detroit to the reports coming out of the China Association of Automobile Manufacturers (CAAM). Industry sales for June reached 1.14 million vehicles, a 36.5% increase on the same month last year.

Within the headline figure, sales of passenger vehicles rose 48.4% to a record 873,000 units, slightly ahead of US car and light-truck sales.

July and August are traditionally the weakest sales months in China, with volumes ramping up over the autumn to a peak at year-end. If sales meet 10 million units for the year (now the low end of expectations), they are likely to exceed those of the US – for the first time.

So, who is buying? More consumers from China’s lower tier cities are visiting the sales forecourts; as annual income levels pass $6,000, small passenger cars start to become affordable for the first time.

Government stimulus efforts are helping too, like the halving of the sales tax to 5%, and a subsidy scheme that has encouraged drivers to part-exchange older vehicles.

Similar scrappage schemes contributed to an increase in sales in France, Italy and Germany last month. But commentators in Europe worry that this is a short-term fillip and that sales next year could suffer from this year’s buyers bringing forward their purchases.

In China this is less of a concern: car ownership is still at less than 3% of the population, but is expected to surge at least fivefold over the next decade.

Perhaps it is the scale of this future opportunity that is making for a potentially unlikely comeback for China’s first auto tycoon, Yang Rong.

Yang, the former chairman of Brilliance Automotive (the first Chinese company to list on the New York Stock Exchange in 1992), fled to the US a decade later under the shadow of an “economic crimes” charge from the Liaoning provincial government.

But Yang seems a resilient type and according to the Economic Observer, he is now hatching a plan to launch a new top-five global producer, specialising in hybrid vehicles.

The inconveniences of exile aside, Yang’s plans look ambitious. He is counting on a massive federal subsidy from the Obama administration, as well as generous terms from the state of Alabama, where he will site his US manufacturing base.

But he also needs to persuade a provincial government in China to offer him similar backing, for a manufacturing site.

So Yang has been pitching his idea (presumably over the telephone) to various contenders, with a promise of thousands of jobs and billions in tax revenues.

You’ve got to admire his chutzpah, especially on news that he has even been in touch with his erstwhile foes in Liaoning.

His new firm is to be called Right Way, after a line in a Mao poem that “the right way of human life is full of vicissitudes.”

For Yang, a return to Liaoning really would be a sensational about-face indeed.

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