CHINA: Chinese car market overtakes that of United States

Associated Press

By ELAINE KURTENBACH and DEE-ANN DURBIN , 12.10.09, 05:10 PM EST

SHANGHAI --

China has overtaken the U.S. as the world's biggest market for automobiles, the first time any other country has bought more vehicles than the nation that produced Henry Ford, the Cadillac and the minivan.

Now that the Chinese buy more cars and trucks than Americans, the shift could produce ripples for the environment, gas prices and even the kinds of cars automakers design.

More than 12.7 million cars and trucks will be sold in China this year, up 44 percent from the previous year and surpassing the 10.3 million forecast in the U.S., according to J.D. Power and Associates.

China has long been expected to overtake the U.S. since its population of 1.3 billion is more than quadruple that of the United States. But the increase in sales happened much faster than anyone expected because of China's tax cuts, its stimulus program and a depressed American market.

Two years ago, J.D. Power predicted China would pass the U.S. in 2025. Earlier this year, it forecast 2009 sales of just 9 million vehicles for China.

After a sharp slowdown in auto sales late last year, the Chinese government cut taxes on small cars and spent $730 million on subsidies to encourage sales of SUVs, pickups and minivans. A big stimulus program also boosted truck sales by pumping money into construction.

Auto sales were expected to rise with China's stimulus, but they have far exceeded expectations, said Jeff Schuster, J.D. Power's executive director of automotive forecasting.

Most experts think the top-sales title will shift back and forth between China and the United States for the next several years, with China ultimately prevailing.

Improving sales of autos and other big-ticket items is key to Beijing's strategy to promote stronger domestic consumption and lower dependence on exports.

"The government has sent a very clear message that they will not let the auto industry weaken, especially in 2010," say Jia Xinguang, chief analyst at China National Automotive Industry Consulting & Developing Corp.

Meanwhile, U.S. sales hit a 26-year low in early 2009 and remain well below the 17 million average from earlier this decade.

China's growing auto market is sure to affect the industry worldwide. Some key factors are:

_ CHINA'S CAR POLLUTION: It's gotten worse. China's fleet is newer, and big cities have imposed emissions standards that exceed those in the U.S., but lax enforcement of standards is a major problem. Vehicles may meet standards at first but then degrade over time.

On top of that, the number of vehicles on China's roads is soaring, although it's still a fraction of the U.S.

_ FUEL DEMAND: Global demand for oil is rising, fueled by China and India. Most energy experts agree that demand for crude has peaked in the U.S. Meanwhile, China's demand for oil used in transportation could more than double between 2007 and 2020, according to the World Energy Outlook, a joint study by the Organization for Economic Cooperation and Development and the International Energy Agency.

At home, China struggles both with the amount and quality of its fuel supply. A study by Harvard researchers found that refiners were not supplying fuel that was good enough to meet the country's rising emissions standards.

The cost of oil is prompting China to encourage a shift to cars and trucks that are more fuel efficient or run on batteries and alternative fuels. The government has raised taxes on gas guzzlers. China is the world's No. 3 net importer after the U.S. and Japan.

_ VEHICLE DESIGN: The Chinese will have more influence over vehicle design as they buy more cars. GM had its Chinese team design the 2010 Buick LaCrosse because the brand sells better in China than in the U.S. Buick is considered a luxury car in China.

The designers included sumptuous back seats for executives with drivers. They also used Feng shui principles and swooping designs based on Chinese art.

Chinese automakers will emerge stronger from the sales boom. BYD Co. aims to overtake Toyota as the global auto leader by 2030. Among BYD's backers is billionaire investor Warren Buffett.

China's sales may grow so large that cars designed for Chinese tastes are sold globally, the way U.S. vehicles are now. But some experts doubt that will happen until Chinese automakers become competitive on style and quality.

Meanwhile, as China's middle class expands, Chinese car shoppers are developing tastes similar to those of drivers in the U.S. and other wealthy nations.

"I talk to my friends in Beijing," says Crystal Jiang, a professor at Bryant University in Smithfield, R.I., who studies globalization. "I drive a Subaru, they also drive a Subaru."

Durbin reported from Detroit. AP Auto Writer Tom Krisher in Detroit contributed to this report.

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