Volkswagen, Mercedes-Benz, BMW and Porsche all reported China sales for the April-June quarter that fell between 30% and 41% compared with the same period a year ago, according to company data released over the past week. The numbers are brutal. For the first half of this year, all four reported a drop of more than 20% in China, a reminder that even the biggest corporate machines are not immune when demand weakens and competition turns feral in the world’s biggest auto market.
The Market’s Cold Arithmetic
Volkswagen group, the Wolfsburg, Germany-based auto giant that has been betting big on China, saw deliveries there fall 36.6% in the quarter to 424,300 vehicles. That hit its global sales too, dragging them down to an 8.6% decline even as deliveries rose in Europe and the Americas. The company said it would slash its model lineup by up to half after the latest sales declines. So much for the grand plans. When the numbers turn, the boardroom trims the catalogue and calls it strategy.
China’s prolonged property sector downturn and an economic slowdown have hurt consumer sentiment, with more people shunning big-ticket purchases. Strong competition in the domestic car market and a yearslong fierce price war have also hit many European carmakers, with drivers opting for affordable Chinese car brands. Porsche, part of the Volkswagen group, called China’s market environment “challenging” in a statement, while Mercedes-Benz said China is facing “a significantly weaker overall market and macroeconomic environment.” The language is polished. The message is plain: when purchasing power weakens and price wars intensify, the corporate order starts to wobble.
China’s passenger car sales at home fell 24% in the first half of this year to nearly 8.3 million, according to the China Association of Automobile Manufacturers, an industry group. Consultancy AlixPartners expects sales of light vehicles, including passenger cars, in China will likely fall about 10% for the whole of this year. Those are huge numbers, and they show how quickly the machinery of profit can be squeezed when the market cools. The people at the bottom don’t get a say in any of it. They just absorb the consequences.
Who Gets Squeezed
Stephen Dyer, Asia-Pacific leader of the automotive practice at AlixPartners, said at a news briefing last month: “foreign automakers are going to have to fight for every share of (the) market.” That’s the language of the system laid bare. Fight for share. Fight for margins. Fight for survival. The market doesn’t care who gets flattened in the process.
Chris Liu, with the research and advisory group Omdia, said German auto groups remain much stronger in making internal combustion engine vehicles, such as gasoline cars, than electric vehicles, at a time when EVs sales in China are doing better than conventional fuel vehicles. The old industrial giants are being outpaced where the market is moving. Their strength in yesterday’s technology doesn’t buy them much today.
Lei Xing, an independent auto analyst, said the latest quarterly sales declines were some of the steepest seen for the German automakers in China. Xing said: “The German automakers are bearing most of the brunt.” He also said Chinese carmakers have a competitive edge over foreign automakers because they typically update their model lineup a lot more frequently than their rivals. That’s the rhythm of capitalist competition: innovate faster, cut deeper, sell cheaper, or get shoved aside.
The result is a familiar one. Corporate giants that once treated China as a growth engine now face shrinking sales, falling profits and strategic retrenchment. The language of “market environment” and “macro-economic conditions” can’t hide the basic fact that these firms live and die by forces they don’t control, while workers and consumers are left to deal with the fallout. The market is ruthless. It always has been.