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Higher fuel prices drive vehicle buyers to think small

(Agencies/China Daily)
Updated: 2008-06-30 11:01

That makes the recent pattern of growth in Chinese car sales unsustainable over the long run, analysts say.

Overall sales in China rose 22 percent to 6.3 million cars last year, but of that total, sales of sports utility vehicles (SUVs), which tend to use more gasoline, jumped 50 percent to 357,400, according to the main auto industry association.

"Look at what happened in the States," says Huang Zherui, auto analyst at consultancy CSM Worldwide.

"Americans are now abandoning gas-guzzlers like SUVs. Why wouldn't the Chinese, as costs of fuel eventually become unbearable?"

Demand growth for both SUVs and passenger cars has slowed by about a fifth in the first five months of this year.

Wang Mingchun, industry analyst at Tianxiang Consulting in Beijing, estimated the gasoline price hike on June 20 would cost the average Chinese car owner an extra 100 yuan a month, or 5 percent of an ordinary Shanghai resident's disposable income.

That isn't enough to stop many people from buying cars, which cost around 120,000 yuan for small models, but it will prompt buyers to think twice about fuel economy, she says.

Shares tumble

Shares in most Chinese automakers tumbled as advance word of the gasoline price hike spread and investors bet sales of their largest, most profitable models could suffer.

SAIC lost nearly 13 percent during June 16 to 20, underperforming a 1.3 percent fall by the Shanghai market's main index.

But the Hong Kong-listed shares of Chinese auto battery maker BYD Co, which expects to start selling electric hybrid vehicles in China by the end of 2008 and in Europe within three years, outperformed. BYD gained 3.2 percent, against a 0.7 percent rise by the Hang Seng Index.

Analysts speculate that to complement rises in gasoline prices, Chinese industry regulators may soon introduce incentives to jump-start demand for eco-friendly cars that have so far been too expensive for most of the public.

That could benefit sales of Toyota's Prius, the world's best-selling hybrid car.

The firm has sold over 1 million of the cars globally since its debut in 1997, but it moved only 1,000 of them in China last year, or 0.2 percent of Toyota's total sales in the country.

Incentives could also help SAIC's green efforts. Its venture with General Motors launched the Buick LaCrosse Eco-hybrid in China in January, and has said it plans to launch a fuel cell-powered model after 2010.

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