China on Track to Become Largest Automotive Market by Years End

Sales of passenger vehicles in China rose by an astounding 70.5% in July. Spurred on by government subsidies to auto makers and tax cuts for consumers, the increase was the largest single-month gain since January 2006.

According to the China Association of Automobile Manufacturers, a total of 832,596 passenger vehicles were sold in July. The total number of vehicles, including commercial trucks and buses was up 64%, or 1.09 million units, from the previous July.

Auto sales in China have increased by more than 45% over a three-month period beginning in May. Domestic automakers are ramping up production, and foreign automakers, GM and Nissan, have partnered with Chinese concerns to increase their capacity and capitalize on the rising demand.

According to Ricon Xia, an analyst with the Daiwa Research Institute located in Shanghai, “Sales in the second half will continue to be strong, even if there’s a slight slowdown in growth rates.” He says that, unlike some markets that have seen a rebound in the sales of smaller autos, China is beginning to see an increase in the sales of larger autos as well.

The bounce in auto sales is translating to a bounce in the stock price of China’s largest automaker, SAIC Motor Corporation. A GM partner, SAIC Motor Corporation has seen its stock price more than triple in Shanghai trading since the beginning of the year.

Due in part to rural subsidies by the Chinese government, GM saw a 78% increase in sales during July. Sales of GM’s minivan line accounted for approximately 60% of total sales for the month. In addition to its partnership with SAIC, the Detroit-based automaker has also announced a joint venture with China FAW Group Corporation to produce commercial vehicles in China. According to Nick Reilly, China FAW Group’s head of international operations, the joint venture is expected to launch by the end of this year.

Nissan has partnered with domestic Chinese automaker, Dongfeng Motor, to build a new manufacturing plant in Guangzhou, China. When operational, the project will increase the partnership’s total production capacity to about 700,000 vehicles per year.

In the U.S., new vehicle sales dropped 32% during the first seven months of 2009 to 5.8 million units sold. During that same period, new vehicle sales in China rose by 23% to 7.2 million units sold. Although the picture has improved for U.S. auto dealers as the result of the federal government’s CARS program, many are predicting that China will surpass the U.S. as the world’s largest automotive market by the end of this year.

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