From the shift to battery-electric vehicles to the proliferation of ride-sharing, the long-term structural challenges that face car manufacturers have been well documented. However, one headwind that has taken automakers by surprise is the sharp decline in the world's largest car market: China.
Source: Associated Press
In 2018, China recorded its first annual decline in car sales for more than two decades. The impact this had on major automotive companies became increasingly clear as 2018 earnings reports filtered through over the past week.
"Most concerning was the unexpected slump in the Chinese auto market," Fiat Chrysler Automobiles NV CEO Michael Manley said after reporting a 28% year-over-year decline in shipments to the Asia-Pacific region. Tata Motors Ltd. wrote down the value of its Jaguar Land Rover division by £3.1 billion after it revealed a 47.1% drop in China sales. Tesla Inc. has cut prices in China several times in recent months. General Motors Co. Chairman and CEO Mary Barra said she expects sales in China to be on a par with 2018 levels. This list of laments goes on.
Where are the reasons for optimism? The Chinese government has announced plans to stimulate the economy, with a particular focus on stabilizing sales of automobiles and household goods. Trade talks resumed this week between the U.S. and China which could, in a best-case scenario, see China reduce tariffs on U.S.-made cars. Furthermore, luxury brands have warned of waning demand in China, but the latest results from Hermès, Kering SA and The Estée Lauder Cos. Inc. suggest consumer spending is not uniformly depressed.
The scale of the Chinese market — Ford expects it to be twice as large as the U.S. by 2025 — means this is not an issue any carmaker can simply ignore. Many have talked of refreshing lineups, increasing local sourcing and rethinking dealer networks. The companies that best address the China problem are most likely to excel in 2019.
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Consumer Edge is a weekly collection of critical developments across the automotive; retail; and food, beverage, and tobacco industries that draws on exclusive analysis and value-added content from the Consumer News team at S&P Global Market Intelligence.