INSUBCONTINENT EXCLUSIVE:
months are serving as a painful reminder that the two world's most populous markets are not living up to earlier heady expectations.Take
Former Beijing Automotive Group (BAIC) president Wang Dazong confidently predicted in 2010 that annual sales in the world's biggest car
More circumspect but still bullish, the Chinese government said two years ago it was targeting 3.5 crore by 2025.Today, neither prediction
gels well with the reality on the ground.Hit by a slowing economy, the US-China trade war and the chaotic implementation of new emission
rules, vehicle sales logged a 12th straight month of declines in June
its first decline since the 1990s.The slump is exacerbating problems of excess capacity, with factory utilisation rates at China plants for
many automakers estimated below break-even point
seeing the market increasingly moving towards maturity, it's a case of peaking demand," said a head of China operations at a major global
automaker, adding the market was beginning to become cyclical.Like other industry executives, he declined to be quoted by name ahead of
second-quarter earnings.Shrinking markets in China as well as India spell lower earnings for many automakers, which have invested heavily in
plants and vehicle development in both countries on expectations they would power global auto sales growth for years to come.The slumps in
sales also come at time when car makers can ill afford them
Costs are jumping as the industry strives to meet new emissions standards and develop electric vehicles while wrestling with competition
from tech firms in self-driving vehicles as well as from ride-hailing companies.Auto sales in Asia-Pacific, estimated at around 4.3-4.4
LMC Automotive shows.While a small bounce back is expected for 2020, they expect sluggish to flat growth for some years to come - one that
calls for 'a mindset reset' says May Arthapan, director of Asia-Pacific forecasting at LMC."We'd better get used to an adjusted view of
Asia," she said.Unfulfilled promiseIf China's slowdown has had the biggest impact, India has perhaps been the biggest disappointment,
failing to live up to hopes it would become Asia's "next China", auto industry executives say.With 130 crore people, its population is
similar in size to China's but annual vehicle sales stood at 33 lakh in the last financial year to end-March
abolish high denomination bank notes in a crackdown on corruption hurt India's informal cash-based economy and with it car sales
Higher taxes and insurance costs have also raised the cost of vehicle ownership.The auto market then took a sharp turn for the worse amid a
liquidity crisis in the non-bank financing sector which saw its willingness to extend car loans wither away
downturn has led to cuts in production or temporary plant shutdowns with some automakers taking more drastic measures
venture, sources told Reuters in April.Excess China capacityBut due to its market size, automakers are most concerned about China
In addition to economic and trade headwinds, in big cities across China, including Beijing and Shanghai, there just doesn't seem to be
enough space on the roads to cater to more demand."Who wants to buy a car when the most likely outcome of your new purchase is to be stuck
in hopeless traffic," said Yale Zhang, head of Shanghai-based consultancy Automotive Foresight.That has led to a market with fewer winners
sales and must deal with excess manufacturing capacity.According to US consulting firm AlixPartners, 2018 capacity utilisation rates at
China assembly plants operated by Hyundai Motor, Kia Motors, Fiat Chrysler , Renault SA, PSA Group and Ford were below 50 per cent
that Chairman Zhu Yanfeng last year tried to convince Honda and Nissan to take over one of PSA's China assembly plants, sources with
knowledge of the matter said.The sources declined to be identified as they were not authorised to speak to media on the matter.A Paris-based
PSA spokesman said the automaker was working hard to change its China business model and that one option "could be 'capacity rental' to
other car-makers." Honda, Nissan and Dongfeng declined to comment.Ford, Hyundai and Kia declined to comment on their China capacity
utilisation rates, while Fiat Chrysler did not respond to a request for comment
A Paris-based Renault spokeswoman said the rate estimated by AlixPartners was "skewed" because the automaker is overhauling its product
lineup.Despite the current slump, Zhang notes the China market has much room to grow, estimating there are only 170 vehicles per 1,000
people compared to 550 per 1,000 for Japan and 800 per 1,000 in the United States
It will just take more time than most in the industry would like."I can still see annual demand rising to 3.5 crore but that would probably
take 10-15 years to achieve," he said.Get Breaking news, live coverage, and Latest News from India and around the world on
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