China monthly auto sales overtake US for 1st time

Monthly auto sales in China surpassed those in the U.S. for the first time last month, but automakers and industry watchers say the news may tell us more about the troubles in the U.S. than about China's growing car market.

"China has the potential very easily to become the largest car market in the world," said Tom Wilkinson, a spokesman for General Motors Corp., but "it was probably a bit of an aberration in January."

Data released Tuesday by the China Association of Automobile Manufacturers shows 735,000 new cars were sold in China last month, down 14.4 percent from the record of 860,000 set in January 2008. U.S. sales, meanwhile, fell 37 percent to 656,976 vehicles - a 26-year low.

It's another indication of China's economic clout, but it may take a while before China becomes the world's largest auto market.

"Right now, with the U.S. in correction mode, we're going to get these kinds of anomalies," said Rebecca Lindland, auto analyst for IHS Global Insight. "We could get them throughout the course of this year and throughout next year if we don't get an economic recovery."

U.S. auto sales have shrunk from an annual sales rate of around 16 million to sales of 13.2 million vehicles in 2008. Analysts and automakers are predicting industrywide sales to drop as low as 10.5 million this year as high unemployment and low consumer confidence keep people from purchasing big-ticket items.

Chinese vehicle sales also have cooled, but hardly as dramatically. In 2008, China's auto sales grew 6.7 percent to 9.38 million units - the first time growth has fallen below 10 percent since 1999.

If American car demand revives in coming months, the U.S. likely will remain ahead in annual sales - at least for another year. IHS Global Insight still predicts 2009 sales in China of between 9 million and 9.5 million, and U.S. sales of 10.5 million.

China's vehicle market has grown dramatically in recent years, overtaking Japan in 2006 to become the world's second-largest by annual sales. With 1.3 billion people, China may inevitably leapfrog the U.S., with a population of 300 million, into the No. 1 spot, but that moment may still be many years away, Lindland said.

"Even long term, I think the economics have a long way to go before China consistently passes us," Lindland said.

China's best-selling automakers are GM and Germany's Volkswagen AG, but its own ambitious producers, such as Chery Automobile Co., are growing fast.

GM said it sold a record 1.09 million vehicles in China last year, up 6 percent from 2007. With its growing middle class and vast potential as a consumer market, China is vital for GM, Volkswagen and Toyota Motor Corp. as they count on demand there to offset weakness in the U.S. and elsewhere.

"There's no question that it's a huge potential market if you look at the number of people there, and as more people start to enter the middle class," GM's Wilkinson said. "A car is something a lot of people aspire to."

GM is already is one of biggest automakers in China, with billions of dollars invested in joint ventures. The Detroit automaker has been counting on the growth in China and other emerging markets to help offset losses elsewhere. It currently sells cars under nearly all GM brands and through a joint venture called SAIC-GM-Wuling.

Wuling sales accounted for more than half of GM cars sold in China last year, spokesman John McDonald said, with a huge portion coming from the popular Sunshine minivan.

To spur the slowing auto market, the Chinese government has rolled out measures to help boost vehicle sales as part of a multibillion-dollar economic stimulus package while it also tries to promote cleaner, more energy-efficient engines.

The sales tax on cars with engines less than 1.6 liters has been cut by half to 5 percent through the end of the year. The government also is spending 5 billion yuan (about $730 million) on subsidies to farmers to replace three-wheeled vehicles or outdated trucks with small, 1.3-liter-or-less vehicles.

Another 10 billion yuan ($1.5 billion) is going into upgrading automakers' technology and developing alternative energy vehicles.

Trucks and buses make up a larger share of China's sales than those of the United States or Japan. Some observers say that makes direct comparisons misleading. But many rural Chinese use such commercial vehicles for everyday family use.

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Elaine Kurtenbach reported from Shanghai.