Car majors predict growing demand in China

Toyota Motor Corp, Volkswagen AG and Nissan Motor Co are raising production capacity and sales forecasts in China, betting vehicle demand will continue to grow even if the government scraps car-buying incentives.

Volkswagen, the biggest foreign car maker in China, will invest ¤4.4 billion ($5.9 billion) in plants and new models by 2012, while Nissan aims to boost capacity in the nation almost 70 per cent, the companies said April 23 at the Beijing Auto Show. Toyota and Hyundai Motor Co are also building new factories in China, the world’s largest vehicle market.

The automakers are competing for market share as Volkswagen estimates the growing wealth of China’s 1.37 billion people may raise the nation’s auto demand as much as 20 per cent this year. Nissan predicts growth may slow next year as China has signaled it may end a tax break for small cars, and industry consultants JD Power & Associates and IHS Global Insight say car makers risk building too many plants.

“China’s motorization is reaching the masses,” said Takanobu Ito, Chief Executive Officer of Honda Motor Co, Japan’s second-largest car maker. “Even after the tax break ends, demand shouldn’t drop very much.” China’s vehicle sales growth this year will exceed Honda’s original estimate of 10 per cent, Ito said at the auto show. Xu Changming, a research director at China’s State Information Center, said last week demand may rise about 17 per cent to 16 million vehicles, down from 46 per cent last year.

The government is likely to raise consumption tax to 10 per cent next year for cars with engines no larger than 1.6 liters, after cutting the rate to 5 per cent in 2009 and raising it to 7.5 per cent this year, Xu said. Last year’s reduction, which helped Chinese auto demand surge past the US for the first time, resulted in “unsustainable” growth, he said.