Beijing may overtake Detroit as the worlds' largest car market.

Byline: [e-mail] (Staff Writer)

According to figures compiled by CEIC, January 2009 automobile sales figures reveal that China has surpassed the US in monthly vehicle sales for the first time in history. This together with China's 25 per cent year-on-year automobile sales growth in February 2009 has spurred discussion on the once far-fetched but now very real possibility that Beijing may overtake Detroit as the worlds' largest car market.

China has been recognised as one of the world's fastest growing market in the automobile sector since it overtook Japan to become the world's second largest in 2006. And as the US auto market has contracted from annual sales of 17.1 million units in 2006 to 13.5 million units in 2008, China's grew from 7.2 million units to 9.4 million units over the same period.

While no robust conclusion should be made based on just a few months data, CEIC said that various emerging trends coupled with the confluence of macroeconomic shocks hitting the US economy and automakers suggest it is plausible China can indeed overtake US as the largest automobile market in the world on an ongoing basis.

Thanks to the rapid rise in disposable income and growth of urbanization which saw China's urban household disposable income per capita rose 151 per centfrom $759 in 2000 to $2,271 in 2008, the China auto market is enjoying the sort of golden age experienced by US automakers in the post-war period where millions of consumers are buying their first car as they aspire to a middle-class lifestyle.

On the other hand, in the saturated US market, consumer attitudes towards cars have been shifting towards 'frugalism' as recession and environment concerns hit across a wide range of consumers. The average age of cars on the road in the US is, according to a recent WSJ article, now 9.4 years.

While auto sales in China rose by only 6.6 per cent in 2008 as a whole - the slowest growth rate in the past eight years, China is and will still remain a bright spot in the global automobile industry especially as Premier Wen Jiabao pledged to improve China's policy on automobile consumption.

Already the Chinese government has lowered the purchase tax on motor vehicles from 10 per cent to five per cent this year to stimulate sales. It has also provided one-off allowances to farmers to upgrade vehicles types. Subsidies for scraping old cars will be raised while regulations restricting car purchase will be removed. Such initiatives coupled with shifting consumer trends have prompted industry analysts to predict Chinese automobile sales to surpass that of US within the next three to six years.

2009 CPI Financial. All rights reserved.

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