Auto Market Simmers in China

China’s auto market is about to get a lot more competitive. Auto makers and analysts say China’s once red-hot demand for automobiles could register single-digit growth rates for a second year in a row, the slowest back-to-back years since the market first took off in the late 1990s. Analysts and industry executives say the slowdown will likely make competition in the world’s No. 1 auto marketplace more cutthroat as more auto makers pile in. Some industry executives meeting at a major auto show in the southern China city of Guangzhou said Monday that the slowdown presages a shift away from dependably strong growth as the market matures in China, even as auto makers increasingly depend on the country for growth amid sluggishness in the U.S. and Europe.

Much of the toughest competition is likely to occur in the lower end of the market, as local auto makers fight for survival against foreign-led joint ventures looking for growth. Nissan and Dongfeng said at the opening of the Guangzhou show that next year they plan to launch the Venucia, their joint China-only brand that takes direct aim at consumers who have been buying low-priced, no-frills cars from China’s indigenous brands. But competition is heading up in other parts of the market as well. Volkswagen AG said at the auto show that it plans to launch its Seat brand—which it often aims at younger buyers—in China next year, and the German company announced a push into southern China, where it said Japanese brands have long been prevalent. At the high end, Fiat SpA of Italy said it plans to launch its Alfa Romeo brand in China next year, though the date hasn’t been determined yet.

Executives at the Guangzhou show said that China, while still growing, has become one of the world’s toughest markets. “Competition will likely heat up, and we may start seeing the beginning of a consolidation of the industry, with smaller, lower-tier makers being absorbed into bigger players,” said Kimiyasu Nakamura, chief executive of Nissan’s manufacturing and sales joint venture, though he added that could open opportunities for deep-pocketed foreign competitors. At the same time, industry observers expect government incentives for car purchases to subside, gasoline prices to rise further, and limitations on license-plate issuance to spread to big cities across China as officials fight worsening traffic congestion. Some observers also warn about the so-far unknown impact of the European debt crisis on China’s export-dependent economy. Executives with foreign auto makers also described plans to bolster China-only brands along with Chinese partners, such as Nissan’s Venucia and the Baojun, a brand owned by GM and China partner SAIC Motor Corp. that began selling a few months ago.”The market is getting crowded,” said GM’s Mr. Wale.

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