Shanghai bucks car industry gloom

Outside the skies were grey and overcast, but inside the brightly lit exhibition halls at the Shanghai Auto Show, there was little sign of the gloom that hangs over the rest of the auto industry.

Perhaps they were pretending - but the besuited executives standing on podiums, introducing new models or new features to the crowds below them watching sounded excited.

The major manufacturers are pinning their hopes of recovery on the Chinese auto market. They don't really have much choice.

This is one of the only places in the world where the numbers are heading in the right direction at the moment.

More vehicles were sold in China in March than ever before.

Subsidies

For three months now more vehicles have been sold here than in the United States, although to be fair, that's almost as much due to a collapse in sales there as it is to growth here.

In fact growth in the China market slowed considerably in the last few months of 2008, and has only picked up in recent weeks, thanks largely to stimulus measures introduced by the government.

These have included a cut in the purchase tax for smaller cars, from 10% to 5%.

And $730m dollars in subsidies has been made available for those in rural areas who want to replace ageing vehicles with new small vans or trucks.

But growth, any growth is to be celebrated in the current circumstances.

Mature market

The halls are full here. Those running the show were apparently turning potential exhibitors away.

Certainly some visitors said the show felt busier than it had done in past years, and appeared better organised.

In front of the Ford Motor Company stand John Parker, the man responsible for the company's business in Asia Pacific and Africa, declared confidently that China was now "a mature market which is a very significant part of the world auto-market scene".

Ford's Asia Pacific Vice President, John Parker talks to Chris Hogg

But much of last month's extra sales volume came from the smaller cars, which are cheaper now under the new tax rules and they're often not as profitable as bigger ones.

"That creates some challenges, and it really means that you must pay close attention to your cost structure," Mr Parker acknowledged.

"But it is viable to make profits on small cars, we're profitable in our business here in China."

Quality questions

Chinese auto manufacturers tend do well when people buy smaller cars because they sell many of the cheapest models on the market.

Brilliance Autos was unveiling nine new models.

The company has been criticised in the past for producing cars that performed poorly in safety tests.

Wan Yufei, the General Manager of the company's international division insisted those problems were now behind them.

"Our vehicles have now passed a number of tests to enter the European market," he says.

He added that in his view when his company tried to enter more mature, more developed markets, other "non-tarriff barriers" tended to appear which "made life difficult for them."

Certainly the quality issue is one that a lot of the Chinese manufacturers feel they have to address in interviews with the international media.

Robust recovery

Industry analyst Mike Dunne from JD Power, had another question on his mind though, as he toured the stands. Not how robust were the chassis on display, but how robust was the recent recovery in their sales?

"If we look at the engines of growth in China's economy, number one is exports, number two is foreign direct investment," he said.

"Those are both down. If the two key engines are sputtering, what have we got left? We have government stimulus. Can that last? Let's watch and see. No guarantees."

The current measures introduced by the government to help China's car industry are due to remain in place until the end of the year.

By then some economists expect the economy to be performing much more strongly in this country and so, the logic goes, they will no longer be needed.

But such stimulus measures are usually 'front loaded' - they are more effective in the early months when larger numbers of people who didn't need much persuasion to make a purchase go into the showrooms to buy.

The exhibitors here will be watching nervously, once the auto show opens to the public on Wednesday, to see how many people come to see the vehicles on display - it's an important opportunity to try to judge public sentiment.

Of course, with the help of the skinny models draped across the cars, rock music, dancing, and exploding glitter balls, they will also try to spread some excitement in an industry that really doesn't have much to celebrate at the moment.

(BBC)