China Passing U.S. as World's Largest Auto Market

By Jason Simpkins
Managing Editor
Money Morning

China likely outpaced the United States in auto sales for the first time ever last month - the beginning of what could be a lasting trend.

Official data for China's January auto sales is scheduled for release tomorrow (Friday). However, preliminary estimates indicate that about 800,000 vehicles or more were sold in China last month. That would easily top the 656,976 vehicles sold in the United States.

Zhang Xin, an analyst at Guotai Junan Securities in Beijing, forecast sales of 790,000 vehicles in January, The AP reported. Another analyst, Zhong Shi,told Xinhua that sales were even higher.

"Chinese auto sales were 859,400 units in January last year. Even with some slippage, the numbers for this year will keep pace," Zhong said.

If the forecasts prove to be accurate, it would be the first time China has ever passed the United States in monthly auto sales. Moreover, China could actually overtake the United States in annual sales this year.

Chinese auto sales are likely to hit 10.7 million vehicles this year, more than the 9.8 million vehicles projected to be sold in the United States, Mike DiGiovanni, executive director of global market and industry analysis at General Motors Corp. (GM), said Tuesday.

The Bureau of Economic Research estimates U.S. sales will fall to a seasonally adjusted annual rate (SAAR) of 9.2 million this year. [See Chart Below]

U.S. auto sales plunged 37% in January to the lowest monthly level in 26 years. And sales will almost certainly continue to slide as unemployment rises and credit tightens. But the Chinese market remains on track, and is being bolstered even further by tax cuts.

China's government announced last month that it was halving the tax on cars with engines smaller than 1.6 liters, to 5%, for the rest of the year.

"Sales rebounded last month due to the vehicle purchase tax cut," Gao Zhiyuan told The AP. "Customers feel it's a good chance to buy a car for less since the tax cut is temporary."

Beijing is also offering $730 million (5 billion yuan) in subsidies to farmers replacing their three-wheeled trucks with 1.3-liter vehicles, and has pledged another $1.5 billion (10 billion yuan) to the development of more fuel-efficient technology.

On top of that, China may cut the sales tax on pre-owned vehicles by half to 1%, an industry insider told Shanghai's Dongfang Daily.

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