The Unnerving Thing Global Automakers Just Said About China’s Economy

[marmar]

The Unnerving Thing Global Automakers Just Said About China’s Economy
by Wolf Richter • August 5, 2015


Global automakers, still intoxicated with their own optimism after years of white-hot growth that transformed China’s auto market from a backwater to the largest market in the world, have an increasingly chilling message.

The auto industry is a huge force in driving economic growth in China. Most vehicles sold in China are manufactured in China. The component industry has been booming. The distribution and dealer network has been growing in leaps and bounds. Every new plant and dealership means more construction, more equipment, more jobs. Then there’s finance and insurance and all the other elements that make up the car business. But now there’s a slowdown.

Today it was BMW. China has been BMW’s largest, most promising, nirvana-like market. Not that BMW’s results for Q2 were that bad. The euro’s swoon produced a year-over-year sales gain of 20%. Yet, due to soaring costs, despite the weak euro, net profit fell 1.1%.

The problem: China’s market is “normalizing” and “becoming increasingly competitive,” BMW said in a statement. “In the medium and long term, we remain utterly convinced of China’s potential for growth,” it said. But it warned, “If conditions on the Chinese market become more challenging, we cannot rule out a possible effect on the BMW group’s outlook.”

China’s contribution to BMWs operating profit dropped 23% in Q2, echoing Volkswagen’s report last week. BMW has cut production in China by 16,000 vehicles this year, CFO Friedrich Eichiner explained. He blamed the stock market. As it crashed, it kept customers from making large purchases; others demanded hefty discounts. ................(more)

http://wolfstreet.com/2015/08/05/unnerving-thing-global-automakers-said-about-chinas-economy/

[djean111]

1. Do corporations NEVER plan for a downturn?

Did BMW actually plan on selling more and more cars indefinitely?
Did coal actually think they would see no repercussions from solar and wind?
Ditto for nuclear power and the big power companies?
It is like all the business plans nowadays assume nothing but quarterly increases.

[friendly_iconoclast]

2. Planning for a downturn cuts into current profits, so no...

[Warpy]

3. Even before the stock market went bust they'd just about hit saturation

because anyone who had the means to buy one had bought one. The car owning class in China isn't that huge, and while wages are going up, they're not going up that fast or far.

I'm not surprised by this. I'm a little surprised the car companies seem to be.