China goes car crazy, and U.S. firms salivate

SHANGHAI - After more than an eightfold increase in auto sales over the past decade, China has developed a true car culture.

Amid the buzz for last month's Shanghai auto show, ads for a single car papered entire subway stations in this city of 19 million people. Outside a luxury hotel, an employee nearly cried as she took photos of a red Ferrari. "Oh, it's beautiful!" she exclaimed.

Auto plants throughout China, with potted bamboo or fish tanks in break areas, are viewed as essential to the development of smaller cities of a million or more people.

After a decade of double-digit annual sales growth, excepting one year, light-vehicle sales in China topped 17 million last year. While that represented a 33 percent year-over-year increase, it was smaller than the 48 percent surge in 2009.

Still, China's growth is slowing.

Government actions held growth in the first quarter to about 8 percent, compared with a 20 percent increase in the recovering U.S. market, where sales haven't hit 17 million since 2001. Last year, U.S. sales were a below-average 11.6 million.

For Ford Motor Co. and Chrysler Group, which are still getting established in China, the slowing market means they largely missed out on a stretch of record growth, and, in some cases, profits.

"We could have gone faster and should have gone faster in China," said Joe Hinrichs, CEO of Ford China.

For General Motors Co., whose sales in China last year made up 28 percent of its worldwide volume, the slowdown might mean a chance to catch its breath. After having doubled its sales in two years, GM is planning to take five years to accomplish the feat again.

China's governments has deliberately slowed the country's auto binge by cutting off incentives, twice increasing gas prices and limiting license plate registrations in congested Beijing.

China's annual sales growth is expected to hover around 5 percent to 15 percent for the next several years, likely marking an end to the kind of year-over-year sales explosion automakers recently enjoyed. The more normal growth will still offer millions of additional buyers every year and will about double the overall market in the next decade.

As the global auto market struggled to recover from its recent recession, China thrived, partially because of the government's new-car subsidies that are ending.

A similar system is in place in Shanghai. People bid each month for the amount they're willing to pay for a plate. The average bid had been 20,000 to 30,000 yuan--roughly $3,000 to $5,000 -- but this month hit a record high of nearly $7,300.