China car sales look headed for "just" 10% growth in 2011

03/10/2011 4:42 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Auto sales in China climbed by 4.6% in February from February 2010. Before the data was released on March 9 overseas car makers had projected that February could produce the first year-over-year decline in the last 16 months. (For the combined January/February period sales grew by 9.7%. The timing of the Chinese Lunar New Year can shift sales from month to month in the early part of the year. A year-to-year comparison is often more accurate if it includes both months.)

With 4.6% growth the industry dodged that bullet but the data still seem to show that sales are slowing to something like a 10% growth rate in 2011. In 2010 auto sales grew by 32%.

The drop in sales growth stands to reason. Some of China’s largest cities including Shanghai and Beijing have moved to restrict new car registrations and the central government in Beijing has phased out financial subsidies for the purchases of cars with small engines. Higher interest rates, a part of the People’s Bank’s effort to slow the economy and lower inflation, can’t have helped sales.

For the full year Ford (F) and General Motors (GM) project at least 10% growth in passenger car sales in China, the two companies told the Financial Times. Even that growth rate would produce a lot of sales in China since 2010 vehicle sales added up to 18 million units.

The problem of a falling growth rate, however, may be more serious than that math suggests—1.8 million units is still a lot of sales so why worry?—when you remember that every car maker in China has been building new capacity as fast as possible. There could be some wrenching adjustments ahead in those expansion plans if growth in 2011 is “just” 10%.

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