ICON IN THE MAKING

24 NEWS MONDAY 14 SEPTEMBER 2015
CITYAM.COM
China slowdown
puts the brakes
on car industry
LAURENCE FROST
FLUSH with cash and confidence after
years of rising sales, German carmakers
are used to reaping industry-leading
returns. But with Chinese
demand abruptly slowing, the profit
engine has begun to sputter, overshadowing
the glitz of the Frankfurt
auto show which opens tomorrow.
For the home team of BMW, Daimler
and Volkswagen, as well as European
rivals such as PSA Peugeot Citroen,
China’s downturn also threatens to
weigh on already weak emerging markets
and put a damper on recovering
demand at home.
“Auto sector earnings have peaked,”
Bernstein analyst Max Warburton
said, noting the broad array of new
German luxury models aimed
squarely at the world’s biggest auto
market.
“Go see these products while you
can,” he said. “Few would even exist if
it weren't for China.”
Days before the show, IHS Automotive
cut its full-year Chinese market
forecast by 700,000 vehicles, from 4.4
per cent to 1.4 per cent growth. For
2015-17 the shortfall totals 3.6m cars
and light trucks.
Besides marking the likely end of a
stellar run of earnings, the industry
gathering will show evidence of a
deeper shift that is pitting carmakers
against technology players, often
backed by big suppliers such as Bosch.
“For us, new market entrants are
customers just like the established
carmakers,” said Bosch executive Rolf
Bulander. He cited Google and electric
The gathering will
show a shift that is
pitting car makers
against tech players
carmaker Tesla among clients for the
company’s high-tech driver assistance
and sensor systems.
Some of the newer automotive players
may not succeed, Bulander predicted,
“but others will establish
themselves”.
HORSEPOWER TO TERABYTES
German carmakers are attempting to
riposte with their own technology
and with electric rivals to Tesla. Horsepower
bragging rights have given way
to software terabytes, autonomous
driving capabilities and battery watthours
per kilogram.
An electric Porsche will vie for attention
at the show with a battery-powered
SUV from Volkswagen Group
stablemate Audi, BMW plug-in hybrids
and Mercedes-Benz smartphone
apps.
While VW, BMW and Daimler,
which owns Mercedes-Benz, have relied
on China for 30-50 per cent of
their profits in recent years, they have
yet to trim earnings guidance.
Others are sounding circumspect.
France’s Peugeot, which was counting
on Chinese sales to power its recovery
plan, said in July that the strategy was
under review. Domestic rival Renault
is also watching closely as it prepares
to open its first Chinese plant later
this year.
In Frankfurt, the German-owned
premium and ultra-luxury brands are
partying like there’s no tomorrow,
rolling out new offerings such as the
Mercedes-Benz S-Class convertible,
Rolls-Royce Dawn cabriolet and the
Bentayga, Bentley’s first SUV.
To accommodate their expanded
lineups, show stands have morphed
German car makers will be hit
by the market crash in China
into theme parks. BMW has built a
400-metre racetrack, while Audi’s
three-storey effort includes 700
square metres of LED panels, 200 km
of cabling and space for 33 cars.
The exuberance may continue
awhile longer, but analysts believe reality
is about to catch up with the revellers.
“The end of the global auto cycle is
nigh,” said Stuart Pearson of Exane
BNP Paribas, as he cut his VW rating
to “neutral” from “outperform”.
Overspill from weaker-than-expected
exports to China may soon saturate
a US premium market
approaching its peak, Pearson cautioned,
hitting prices and profits.
“What China has started, the US
may finish,” he said. “Investors should
look to sell into the final flourish of
the cycle in 2016.”
Reuters
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