No Beijing Bailout for Chinese Automakers

(page 2 of 2)

So far, hybrid cars have failed to catch on in China, partially because of their high price tags (BusinessWeek.com, 2/14/08). Toyota (TM) began selling its Prius model in China two years ago for more than $35,680; Toyota had hoped to sell 3,000 units in 2006 but did not to reach that target until earlier this year. "I believe clean, energy-efficient cars have a bright future," says Etsuo Hattori, Toyota's executive chief representative for China.

Psychological Impact

Meanwhile, Toyota and other foreign automakers that had been counting on big sales in China will have to settle for less. Hyundai sold 243,000 vehicles as of the end of October, says Beijing deputy general manager Li Honglu. That means the company is likely to fall short of its target of 380,000 vehicles for the full year. "We could say that our earnings are not a pleasant surprise," says Li. Toyota has already dialed down production in Japan because of weak demand from not just the U.S. and Europe, but also China. The Japanese company originally expected to sell 700,000 vehicles in China this year, but will probably fall 100,000 short of that goal, says Hattori. "A lot of potential customers have the money to buy cars, but they have been affected psychologically from the financial crisis," he says.

Even affluent Chinese are feeling the pressure. Last summer, Nissan (NSANY) started selling its luxury Infiniti model in China and is on track to sell 4,000 of them this year, compared with 1,500 in 2007. But demand for high-end cars has dropped, says Yasuaki Hashimoto, president of Nissan (China) Investment. "I am not so optimistic about the luxury market," he says. "I think it will be affected to some extent by the crisis."

Nevertheless, with China being one of the few markets in the world that is still growing, some foreign automakers are forging ahead with their plans to invest in China. For instance, Toyota is expanding a factory in the western province of Sichuan, scheduled to open in 2010. Rival Nissan in September started construction on a new factory, also scheduled for a 2010 debut. And Chinese and foreign media reported early this month that SAIC Chairman Hu Maoyan says even GM wants to expand in China. The U.S. automaker is looking to raise its stake in a joint venture with SAIC above its current 34%, Hu said. GM has not commented on the reports.

With Frederik Balfour in Hong Kong.
Tschang is a reporter in BusinessWeek's Beijing bureau.