Carmakers lined up their sparkling new models at the Frankfurt Motor Show this week but behind executives’ smiles, they are grappling with testing times.
Sales are tumbling in most large markets, while the industry is being forced to invest in costly lower-emission technologies.
Nowhere is this more amplified than in China, the largest car market in the world.
A sales downturn struck last year for the first since the 1990s. Japanese and premium German brands have held up relatively well but lower-end marques have been hit hard.
Car sales in China have traditionally been driven by younger first-time buyers, with many choosing cheaper, mass-produced cars.
But an end to government tax breaks for small vehicle purchases, mixed with the pall of a slowing economy and a trade war with the US, had left more mature buyers on their second or third vehicle as the main force pushing Chinese sales, analysts said.
“The stars of last year were Toyota and Honda . . . because they have reliable good quality products that save fuel and have all the normal attributes that really appeal to mature car owners,” said Yale Zhang, head of Shanghai consultancy Automotive Foresight. Both carmakers posted record sales in July.
The German luxury brands are also weathering the storm, as buyers in China’s largest cities continue to upgrade.
Consumer sentiment has been pushed towards safe bets, threatening the Chinese government’s ambitious aim to build a robust market for electric vehicles, sales of which have gone into reverse after government subsidies were scaled back.
“Consumers are pushing back into traditional automakers who have reliable vehicles at that traditional price point,” said Tu Le of Sina Auto Insights. “People are thinking: I can’t take risks with this Rmb300,000 I’m spending.”
The pressure on mass-market groups such as Ford and PSA means that a number of carmakers may reconsider their position in China, but significant withdrawals are unlikely in the near future, according to Janet Lewis of Macquarie.
She believes first-time buyers are taking a pause in part because their purchases are discretionary and easily postponed, meaning companies that navigate the downturn will be left in a strong position.
“Part of the government’s lack of desire to support the market more is that they would like to see a rationalisation take place, rather than having 50 different automakers,” she said.