one thing America has long been famous for, it is
our longstanding love affair with cars. Ask anyone
who currently has the biggest automobile market in
the world and the answer would just have to be the
United States. But as of now, that answer is dead
years ago, China’s exploding automobile industry raced
past Japan to become the world’s No. 2 vehicle market.
Now China has surpassed the United States to become
the world’s largest market for automobiles.
the United States as the world’s largest auto market
for the first time in January, when it sold more cars,
735,500 units, according to the China Association
of Automobile Manufacturers.
investor knows, America’s auto industry is desperately
weak and on the verge of bankruptcy without the help
of ongoing government bailouts. A near-term recovery
in vehicle sales in the U.S. is highly unlikely as
the recession and unemployment take their toll on
auto market now has America in the rearview mirror
and the U.S. is unlikely to regain the lead. Vehicle
sales in China rose 6.7 percent to 9.38 million units
last year. Sales may grow another 5 percent this year
(considered sluggish by Chinese standards). Although
China is growing while the U.S. is shrinking, the
China Association of Automobile Manufacturers acknowledges
that the latest figures show the slowest pace of growth
one investor asked our staff why we were not more
interested in making more investments in the booming
Chinese auto industry. The answer is quite straightforward
and requires some understanding of conditions in mainland
the situation in a nutshell, the Chinese auto industry
looks much like the U.S. industry did in the 1920’s
and 1930’s when America was making Packards and Reos
and countless other now-extinct brands. China currently
has more than 80 car companies and an industry-wide
shakeout is inevitable.
who will survive the battle for survival in this industry
is impossible, partly because many Chinese provincial
governments are major stakeholders in failing enterprises
and may be willing to use bailout funds to prop up
unviable corporations. That kind of action threatens
to prolong the survival of the weakest and to make
it more difficult for established automakers to survive.
who has visited China recently will have noticed that
BMWs, Volkswagens, Toyota and GM brands dominate the
roads in every major city. All foreign automobile
firms operate in partnership with Chinese enterprises.
But in the countryside, cheap and undependable brands
like the “Florid” are popular because they sell for
less than $8,000 per vehicle.
very messy and unpredictable situation for investors.
Does that mean there are no investment options related
to China’s booming auto industry? Not at all.
related industrial sectors which are far less fragmented
and more likely to make a dependable profit. We’ll
be looking more closely at the safer ways to play
the China auto boom in coming editions of the