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US automakers struggle in China as consumers turn to German, Japanese brands

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US automakers struggle in China as consumers turn to German, Japanese brands

SNL ImageA man walks past an ad for a Dongfeng Motor car in Shanghai during the 2019 China Auto Show.
Credit: AP Photo

U.S. automakers felt the brunt of the record 8.2% decline in China car sales last year as consumers turned away from Detroit's "Big Three" and domestic producers in favor of German and Japanese brands.

The market share of U.S. brands fell to 8.9% in 2019 from 10.45% in 2018 and 12.3% the previous year, according to figures from the China Association of Automobile Manufacturers and auto industry data provider Marklines. In contrast, German vehicles accounted for 24.2% of sales, up from 21.43% the prior year, while Japanese brands increased their market share to 21.3% from 18.75%.

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Ford Motor Co.'s sales fell 26.1% in 2019, the third consecutive year of decline, while rival General Motors Co.'s sales slumped 15% to 3.09 million and Fiat Chrysler Automobiles NV expects a 6% year over year decline in passenger car sales in China for 2019.

For Ford, which has seen significant personnel changes of late in its China division, its product mix may be one area of weakness. Jochen Siebert, managing director of consultancy JSC Automotive, noted that Ford had made a mistake by going too rapidly into the lower-end segment with its Escort models.

"The same goes for General Motors, putting too much emphasis on Baojun and lower-level cars like Chevrolet," Siebert said.

Analysts also suggested that Ford's stale offerings have partly led to its loss of market share.

"Chinese consumers don't like vehicles that have been two to three years in the market, and so sometimes there's a cyclical effect to carmakers. When there's a large quantity of mid-range models being launched, they tend to sell very well compared to carmakers who have old products in the market," said Stephen Dyer, managing director at consultancy AlixPartners.

Anning Chen, president and CEO of Ford Greater China, confirmed in a statement that sales had suffered in the value segment, which includes its Escort models. The company said it will launch 30 new models in China over the next three years, a third of which will be battery-electric or plug-in hybrids. It will also increase its focus on the premium end of the market with its Lincoln brand.

Ford entered the Chinese market in 1997, relatively late compared to its peers, and initially focused on the commercial van segment. It only set up a partnership with Chongqing Changan Automobile Company Ltd. in 2001 to launch the compact Fiesta model.

Tu Le, managing director of Sino Auto Insights, believes that Ford has suffered from a weak joint venture due to its late arrival in the country. "They make little or no money from the Fiesta. Most of the cars, like the SUVs, that give them margins are imported," said Le.

Given the situation, Ford could seek to take over the joint venture. The Chinese government in 2018 lifted the 50% ownership cap on foreign manufacturers in partnerships.

But whether Ford, which cut 7,000 jobs in its home market in 2019, would have the financial ability or political will to do so is uncertain. "If they were to commit $2 billion to $3 billion over the next few years for China, there will be a backlash over in the U.S.," said Le.

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Expensive tastes

In stark contrast to the struggles of the conventional U.S. carmakers, Germany's Volkswagen AG increased its market share in China by 19.8% in 2019, selling 4.23 million units with its joint venture partners SAIC Motor Corporation Ltd. and Faw Car Co. Ltd. German luxury car manufacturers Bayerische Motoren Werke AG, AUDI AG and Daimler AG all grew sales, continuing the strong momentum of recent years.

Japanese carmakers Toyota Motor Corp. and Honda Motor Co. Ltd. also gained market share in 2019. Toyota's China sales grew 9% to 1.62 million units, while Honda's sales rose 8.5% to 1.55 million units.

One U.S. automaker that did perform well in China was Tesla Inc. Its sales more than doubled to 42,715 in 2019 from 16,360 in 2018, even though overall new energy vehicle sales in China fell 4%. In 2020, the electric-vehicle maker is expected to further benefit from selling locally produced versions of its Model 3 and a potential climb down by Beijing on its decision to end all NEV incentives by end of 2020.

AlixPartners' Dyer said the performance of these automakers is in line with the growing sophistication of Chinese car buyers, many of whom are now doing so for the second time.

"They have a better understanding of the importance of quality and reliability, and so we may see the shifting of market share to more mature automakers," said Dyer.

While sales of new vehicles have been shrinking, industry observers believe that there has not been a significant change in overall demand for cars. Used car sales grew 4.6% to 11.85 million units between January and October 2019, according to data from the China Automobile Dealers Association.

This scenario could benefit mature carmakers as better quality second-hand cars will be in demand. "It's good news for the likes of Volkswagen, and we are not even talking about the premium market, but the stronger market brands because they can safely go more upmarket, if they are able to," Siebert explained.

The outlook is less rosy for lower-end carmakers, he said, particularly those with vehicles in the price range below 150,000 yuan.

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Chinese carmakers have suffered from this trend, their market share dropping to 39.2% in 2019 from 42.09% in 2018 and 43.88% in 2017. But some will enjoy the benefits of their joint venture partner brands that have weathered the storm better.

Jefferies analysts listed Guangzhou Automobile Group Co. Ltd. as one of their top Chinese auto stock picks due to the state-owned carmaker's tie-ups with Toyota and Honda.

Shared profit from joint ventures accounted for 99% of GAC's earnings in the first half of 2019 and the Jefferies analysts expect this figure to be 100% for the full year.

As of Jan. 22, US$1 was equivalent to 6.90 yuan.