The Unnerving Thing Global Automakers Just Said About China’s Economy
Global automakers, still intoxicated with their own optimism after years of white-hot growth that transformed China’s auto market from a backwater to the largest market in the world, have an increasingly chilling message.
The auto industry is a huge force in driving economic growth in China. Most vehicles sold in China are manufactured in China. The component industry has been booming. The distribution and dealer network has been growing in leaps and bounds. Every new plant and dealership means more construction, more equipment, more jobs. Then there’s finance and insurance and all the other elements that make up the car business. But now there’s a slowdown.
Today it was BMW. China has been BMW’s largest, most promising, nirvana-like market. Not that BMW’s results for Q2 were that bad. The euro’s swoon produced a year-over-year sales gain of 20%. Yet, due to soaring costs, despite the weak euro, net profit fell 1.1%.
The problem: China’s market is “normalizing” and “becoming increasingly competitive,” BMW said in a statement. “In the medium and long term, we remain utterly convinced of China’s potential for growth,” it said. But it warned, “If conditions on the Chinese market become more challenging, we cannot rule out a possible effect on the BMW group’s outlook.”
China’s contribution to BMWs operating profit dropped 23% in Q2, echoing Volkswagen’s report last week. BMW has cut production in China by 16,000 vehicles this year, CFO Friedrich Eichiner explained. He blamed the stock market. As it crashed, it kept customers from making large purchases; others demanded hefty discounts.
“Normalization” means the Chinese market is in the transition from Nirvana to a rough-and-tumble saturated market where brands have to fight each other for market share to get any sales increases. But no problem: “In the medium and long term, however, we remain utterly convinced of its potential for growth…” he said.
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