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* China remained the top auto market in 2010
* Dec sales up 18.6, small cars out of stock on policy change
* Sales may fall in early 2011, full-yr growth at 10-15 pct
* Limits in car registration, fuel prices seen unfavorable
* GM, VW lead, Ford growth fastest, BYD fails to meet target
(Adds analyst comments, market outlook, details)
By Fang Yan and Ken Wills
BEIJING, Jan 10 Auto sales in China rose by a third to a record in 2010, securing its position as the world's top market, but analysts said sales may decline, especially in the first few months of this year, after Beijing scrapped incentives for small cars.
In December alone, automakers in the country shipped 1.3 million sedans, sport utility vehicles and multi-purpose vehicles to dealers, but they still couldn't keep up with demand.
"Small cars were selling like hot cakes in recent weeks as people wanted to take advantage of the incentives before it was too late," said Meng Yi, a Chevrolet dealer based in Shanghai.
"Instead of getting any year-end bargain deals, people were actually paying full price upfront and getting the cars months later as many models were out of stock a while ago."
Beijing issued a massive package of stimulus measures at the height of the global financial crisis in 2009, including tax incentives for cars with engine sizes 1.6 litres or smaller and rebates for farmers who traded in old vehicles for fuel-efficient models.
The incentives had been scaled back in 2010 and scrapped this year as regulators bet that domestic demand in the populous country will keep the industry humming.
However, the 3,000 yuan ($450) subsidies for fuel-efficient cars that the government started handing out in mid-2010 to nearly all automakers remain intact to help cushion the blow.
"Monthly sales will most likely fall in the first half because small cars account for 60 percent of the market volume. The impact on the mini vehicle segment can't be ignored now that they've taken away the subsidies," said John Zeng, an analyst with J.D. Power Asia Pacific.
The Beijing city government's recent move to impose quotas on new car registrations and possible similar moves by other big cities to tackle traffic gridlock as well as further hikes in fuel prices will also apply the brakes to the simmering market, industry observers said.
The most recent market decline occurred in the second half of 2008 after a devastating earthquake in the country's southwest.
Still, industry insiders say car sales in China will continue to grow for the full year because of rising income levels and the low per capital car ownership ratio in small, inland areas. In 2010, a total of 13.8 million passenger cars were sold in China, the China Association of Automobile Manufacturers (CAAM) said on Monday. Overall vehicles, including trucks and buses, came to 18.1 million units during the period, up 32.4 percent, it said.
In the United States, auto sales rose more than 11 percent in 2010 to nearly 11.6 million vehicles, snapping a four-year slide that had forced two of Detroit's Big Three automakers into government-directed bankruptcies. [ID:nN04134889]
WINNERS AND LOSERS
Local brands will bear the brunt of policy change, especially the termination of tax incentives, as they dominate the small car segment, analysts say. Mid-size cars, mostly carrying a foreign brand, might get a lift as compact cars are less appealing now without the incentives.
Models which had for disappeared from the top ten best sellers' list in 2010, such as Toyota Motor's Camry, could make a come-back next year, analysts say.
Of all the foreign automakers operating in China, General Motors , remain the industry champion with an annual tally of 2.4 million cars and light commercial vehicles.
Close rival Volkswagen , which makes only cars in the country, sold 1.9 million units, including 227,938 Audi brand models.
Hyundai Motor and Kia Motor moved 1,093,071 units, neck-in-neck with Nissan Motor which reported a tally of 1,023,638 million units.
Sales of Ford Motor , a relatively late comer to China, jumped 40 percent, the fastest among all foreign automakers.
"Ford seemed to be rather cautious in the past. But it was very aggressive last year and added 100 or so new dealers in the country," said Sheng Ye, associate research director for Ipsos' Greater China region.
BYD , once a shining star backed by U.S. billionaire Warren Buffett, however, missed its sales target. [ID:nTOE6BI00Q]
Toyota Motor and Honda Motor , hurt by recurring labour disputes at their suppliers, reported a 19 percent and 12.2 percent gain respectively. Massive global recalls also tarnished Toyota's once impeccable reputation for quality and hurt its sales in the country.
With or without tax incentives, China's auto market, will return to a slower but more rational growth pattern sooner or later, as breakneck growth -- gaining 53 percent in 2009 and 33 percent in 2010 -- is not sustainable, industry insiders say.
Hu Maoyuan, chairman of top Chinese automaker and GM's main China partner SAIC Motor Corp , once likened the development of Chinese auto industry as a marathon game.
"The market loves explosive sales growth and we love it too, but it's a marathon not a 100-metre race," Hu told a shareholders meeting late last year adding one can not run marathon in the speed of a sprinter.
Many industry executives, including GM's China chief Kevin Wale, expected the market to grow at 10-15 percent next year, while others. ($1=6.629 Yuan)
Dec 8 John Hancock Financial Opportunities Fund :
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