Will Europe be a Gold Mine for Chinese Exports?

CarPortChina’s car exports to other countries rose by more than 40% in 2012, which has been an excellent stimulus for Chinese carmakers in the slowing domestic market. A number of local automakers are relying heavily on exports. Lifan, for example, exported 67,000 passenger vehicles in 2012, which accounted for 43% of its total sales.

Chinese carmakers mainly focus on markets in South America, the Middle East, Russia and Eastern Europe. Some domestic automakers have tried to tap into mature markets. The brand MG, which was originally a British brand and is now owned by China’s SAIC, however, managed to sell only 782 cars in the UK in 2012.

Nevertheless, many Chinese brands have announced ambitious strategies for overseas development to further explore mature markets, especially countries in Western Europe.

China’s Automakers Continue to Re-Enter Markets in Europe

The new Chinese brand, Quoros, plans to launch in Europe and Mainland China simultaneously, in order to catch the attention of journalists at home and abroad. In 2012, China’s Geely also announced plans to enter Western European markets, such as Great Britain and Italy.

Unfortunately, these early attempts by Chinese brands to launch passenger vehicles in the EU market countries have mainly proven to be “wild goose chases,” especially since the brands’ models failed to pass European safety agency crash tests in 2005.

Since then, Chinese carmakers have made great efforts to improve their safety standards. In 2011, both SAIC and Geely earned high ratings in crash tests by the European safety agency, which led consumers and auto industry members to believe that Chinese brands have now removed barriers to selling vehicles in the EU market.

European Economic Struggles are a Barrier for China’s Automakers

EuropeHowever, there is another real barrier to progress in this region: the sluggish economy in Europe. The Western European market enjoyed a golden era for 10 years (from 1998 to 2007). Although the financial crisis in 1993 caused a 36% decline in the market, it took only five years to recover, and soon surpass previous levels.

However, the impact of the financial crisis in 2008 is more profound. Western European countries launched massive incentive plans to encourage new car sales, which stabilized the market temporarily in 2009. But shortly after the stimulus, the car market declined dramatically—down by more than 40% due to a stagnant EU market and Europe’s sovereign‐debt crisis. The market is not expected to recover to its 1998 level until at least 2020.

Italy is Favored as a Market by China’s Domestic Brands

Italy seems to be the first stop for many Chinese brands, but the market is also slumping: following declines of 11% and 12% in 2011 and 2012, respectively, the passenger-car market in Italy in 2013 is expected to shrink 9% from 2012.

Sales in Italy this year are likely to drop to less than 1.3 million units, from 2.5 million units in 2007. In fact, all Western European countries, with the exception of the UK, will experience significant downturns in auto sales in 2013.

In addition, the European car industry is facing tremendous redundancy in structural capacity. According to LMC Automotive data, in the first quarter of this year, nearly 40% of production capacity in Europe remains idled.

With a shrinking car market and hungry automobile giants in Europe, it is going to be a tough battle for China’s domestic manufacturers to capture a slice of the auto market in this sluggish Western European region.

Yet, in comparison to the gloomy market in the EU, China’s passenger-vehicle market is still booming with a nearly 20% increase in the first quarter of 2013 from the same period a year ago.

By 2020, LMC Automotive expects new car sales in China to hit 25 million units, which is an 11 million-unit increase from 2012. It is unrealistic for indigenous firms to rely on exports to relieve their difficult positions at home. It would appear that after all, the next gold mine is still in the Far East, not the West.—John Zeng, analyst, LMC Automotive and a contributor to the China Automotive Monthly—Market Trends for

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