China's rise to create truly global auto market

By Nick Carey - Analysis

CHICAGO (Reuters) - In the century since Henry Ford rolled out his first Model T -- the world's first mass-produced, affordable car -- in 1908, America has been the world's No. 1 auto market.

Nothing lasts forever.

Some day in the not-too-distant future the rise of China's middle class and its growing hunger for cars will push aside the U.S. auto market and grab that top spot.

That in and of itself makes sense given China's 1.3 billion-plus population -- a fifth of the world's total -- and robust economy, which is not growing by double-digits anymore but is still enviably healthy.

"The Chinese auto market is going to explode exponentially over the next five to 10 years," said Mirko Mikelic, an analyst at Fifth Third Bank. "They have an untapped consumer base that is constantly growing, so I don't think it would surprise most people that China is expected to surpass the United States in the next 10 years."

But China's rise to the top in numerical terms has some broader implications for the global auto sector.

As ever more people in the country seek to buy their first car, the expectation is that small, low-cost and rugged cars -- rugged because China's roads are still a work in progress, not unlike American roads of Ford Model T days -- will dominate the Chinese market.

U.S. automakers have not focused on building small cars over the years, which means more vehicles will be developed in Europe and Asia, continuing a long-term shift away from Detroit as a research and development center.

America's automakers, however, should benefit from their strong image in developing markets like China. And more than ever before, China's sales will mean car makers must reach out to far-flung world markets.

"China's rise emphasizes the fact that the auto companies that are going to do well are the ones that are truly global," said IHS Global Insight analyst Aaron Bragman. "If you don't have a global presence, you're going to miss out."

ONE UP, ONE DOWN

Unlike most other auto markets, China's has continued to post impressive growth this year.

On July 9, the China Association of Automobile Manufacturers said the country's passenger car sales jumped 47.7 percent in June to 872,900, lifted in part by government stimulus measures including a halving of the sales tax on small cars and subsidies for buyers in rural areas.

The association said total vehicle sales for 2009 would exceed 11 million units.

That growth dwarfs the United States, where auto sales fell 27.7 percent in June to 859,847 vehicles and analysts now forecast 2009 sales of around 10 million units.