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2008 China Motors is still a big bull market
In 2007, the Chinese automotive market experienced a strong bull run. Even though the year wasn't over yet, it was anticipated that passenger car sales would reach 5.3 million units by year-end, representing an increase of around 1 million units compared to the previous year, with a growth rate approaching 25%. Two segments stood out for their high growth: the mid-to-high-end car market, expected to grow by 36% this year, and the medium-to-high-end urban multi-purpose vehicle segment, which saw a growth rate close to 50%.
Looking ahead to 2008, China's auto market was still expected to perform strongly. Passenger car sales were projected to exceed 6.3 million units, up by about 1 million from 2007. This optimism stemmed from several factors. The upcoming Beijing Olympics in 2008 was expected to boost national confidence and consumer sentiment. With government support, the stock market was also likely to remain bullish before the event. A sustained economic expansion and rising disposable income among residents would further fuel demand for cars.
Economic growth is driven by investment, consumption, and exports—three pillars that remained strong. A large trade surplus and the appreciation of the yuan were expected to boost investment, which in turn would benefit the auto sector. Although rising oil prices could have a limited impact on car sales, increased taxes and fees were unlikely to significantly dampen consumer demand. Overall, the domestic auto industry was in a solid position.
However, the leadership of the "DaNiu" (big bull) market segment in 2008 was expected to shift. In 2007, major cities like Beijing, Guangzhou, Shanghai, and Shenzhen saw declining sales due to air pollution, traffic congestion, and high prices. As more people bought cars, the central cities' influence on the overall market weakened. Meanwhile, second- and third-tier cities such as Suzhou, Qingdao, Dalian, Wuxi, Dongguan, and Shunde emerged as strong growth areas. The rural market also showed steady development, supported by deep-level sales networks at the county level.
SAIC and NAC made significant contributions to the Chinese auto industry not only through future joint ventures but also through their integration strategy. SAIC acquired a 15% stake in NAC instead of using cash, effectively making it a controlling shareholder. This approach reflected a more modern and efficient model of corporate integration compared to past administrative methods or large cash acquisitions.
Mergers and acquisitions in developed countries often take the form of cross-shareholding, creating mutual ownership structures. Examples include the Dai-ke merger, Renault-Nissan alliance, and Volkswagen-Audi integration. As PSA President Strve noted, cooperation is a defining feature of the global automotive industry, enabling shared capital and R&D efforts. This trend was becoming increasingly relevant in China.
Domestic automakers faced growing pressure as joint ventures offered high-quality models at competitive prices. For example, vehicles like the Swift and Daifa were priced between 60,000 to 80,000 yuan. In the coming years, lower-priced models from Renault or Guangben could push smaller brands like Geely and Lifan out of the market. As one Chery executive stated, “300,000 units are now the minimum for survival, and 500,000 are still not safe.†The industry’s consolidation was inevitable, driven by scale and innovation.
With ongoing discussions around cross-shareholding, such as the rumored partnership between Chery and JAC, and the continued integration of Dongfeng and Hafei, 2008 was shaping up to be the year of cross-shareholding in China’s auto industry.