Chinese Auto Sales Skyrocket
When I saw the headline, I had to read it twice because it was so impressive that I almost couldn't believe it:
China Car Sales Jump 48% on Support, Most Since 2006
Passenger vehicle sales in China exploded in June, up nearly 50% year-over-year. Wow.
As a result of the surge in sales, the China Association of Automobile Manufacturers increased its full-year vehicle sales forecast to over 11 million units, from its previous estimate of 10.2 million. As a point of reference, the U.S. market will struggle to hit 10 million units in 2009. For the first half of '09 vehicle sales in China rose 18%
The country's surge in auto sales is a great economic indicator. It means that the Chinese economy is in pretty good shape and it could lead to an increase in the price of many metals and in the price of oil as Chinese demand for gasoline rises.
While the country's robust auto sales say good things about the economy, it isn't doing much for automakers profits there. The intense competition in the Chinese auto market has crimped the profit of these companies. The Combined profit at China's 19 largest automakers fell 9.9% through the first five months of 2009. Welcome to the auto industry China. U.S. automakers have been unprofitable for years. The auto industry is only second to airlines in terms of a terrible sector to invest in. Competition in the industry is always tough and it forces companies to cut prices (often through high incentives) to compete.