Trump’s trade war with China just ended Geely’s 46-month streak

Cars
are covered in snow on a snow-covered street on February 19, 2013
in Hefei, China.
VCG/VCG via Getty
Images

• Trump’s trade war with China just helped end one of the
  auto industry’s greatest streaks.
• Sales of Geely cars fell in October, ending a hot run
  of 46 consecutive months of year-over-year growth, according to
  a report from
  The Wall Street Journal.
• Geely is not alone. Car sales in China have fallen for
  the
  past four months year-over-year, and are on course to notch
  up an annual decline for the first time in nearly three
  decades, according to The Journal.
• But its not the end of the road, because much of
  China’s car-making supply chain is pretty localized; what’s
  more China mainly produces vehicles geared for Chinese
  consumption.

Trump’s trade war with China just helped close out one of the
auto industry’s hottest streaks.

Don’t know the auto brand Geely? It’s a bustling outfit out of
Zhejiang province and the company Zhejiang Geely Holding Group
that owns
brands including Volvo.

Around 2014, sales went into hyperdrive for Geely. By 2017, sales
tripled to almost 1.25 million, The Wall Street Journal reported,
making Geely the No. 2 brand in China, behind the ubiquitous
Volkswagen AG’s VW brand.

Pretty much every taxi in China — and there are quite a few of
them — are VWs. And Volkswagen can lay claim to 6% market share,
according to auto intelligence company LMC Automotive.

But that was then.

Sales of Geely cars fell in October, ending 46 consecutive months
of year-over-year growth, according to The Journal.

As the holidays loom, trade tensions are still testy between the
US and China. The two countries have so far imposed tariffs
covering
roughly $360 billion of merchandise trade between them.

And that has implications for every major industry and the
players in it.

Today, Geely stands in the shade of its first-ever 10%
year-over-year sales decline, recorded last month.

It’s not the only auto company suffering. Car sales in China have
fallen for the past four months year-over-year, and are on course
to notch up an annual decline for the first time in nearly three
decades, according to The Journal.

Following China’s decade-long love-affair with four wheels, big
name auto producers are in unknown territory.

Sales of Ford’s passenger cars in China have collapsed by nearly
half (45%) in just the first nine months of the year.

The people who bought Jeep to China, Fiat Chrysler have crashed
into a wall, down 35%, and General Motors’ Buick sales were down
9%, according to LMC
Automotive.

China Photos/Getty Images

In a sign of
China’s yawning wealth gap, the auto dream has for the first
time begun to spin away from China’s aspirational new middle
class. But at the same time, the number plate-less black metal
sharks with tinted one-way mirrors that glide through second-tier
cities like Chongqing and Chengdu are still everywhere.

Things might be tough on the other side of the street, but
China’s luxury-car market is rolling along with nary a speed
bump.

Cadillac sales are up 30% in the first nine months of 2018.

Over the same period, BMW, Audi, and Mercedes-Benz are all
driving consistently ahead at 10% to 13%.

But its not curtains for Geely yet, although investors have
fretted as its Hong Kong-listed shares shed about 50% since this
time last year.

But so have a collection of top-shelf, Chinese-listed names, as
the country grapples with the new reality of an uncertain
economy.
The Shanghai Composite is down 24% in the past 12 months.

The Shanghai-headquartered carmakers’ sales were defiant in the
interim, up 27% year-over-year in the January to September
period. October is where the winning streak came crunching to a
halt.

‘Generally weaker demand’

A Geely spokesman told The Journal of “generally weaker demand
for vehicles … across different regions.”

The trade war has surprised and deflated Chinese consumers weened
on hearty, consistently good economic news. For a very long time,
money has been pretty easy to come by, and if banks stop lending
as banks have done — regardless of instructions not to — then the
rich pickings of a steamy shadow lending system have always been
close by for the intrepid.

Those deep pools have suddenly looked a lot drier. China’s shonky
shadow banking has been making international headlines which is
always the forebearer of bad — usually official — attention.
Following the literal explosion in non-bank lending,
micro-lending to peer-to-peer, officials have finally woken up to
the dangers and clamped down hard on this critical informal line
of credit for everyday Chinese consumers.

Nevertheless, according to Macquarie Group, there is ample room
for Chinese auto sales to continue their happy, heavenward
trajectory, rising effortlessly from nearly 29 million last year
to between 30 million and 35 million in the coming years.

But of course, there is still a trade war to consider

Chinese finished vehicles exported into the US represented only
0.3% of China’s total exports last year, worth $7.2 billion,
according to America’s
International Trade Commission.

However, the US is by far the largest destination of Chinese auto
parts exports, so any tinkering with China’s access to that
market will be very tough for China-based exporters to swallow.

According to the Economist Intelligence Unit, China accounted for
almost 20% of US finished vehicle exports by value in 2017,
that’s about $10.3 billion worth of cars.

Chinese tariffs on US auto imports could exert downward pressure
on certain automakers that export their finished product from the
US into China, including BMW and Mercedes-Benz (both German and
very popular).

Most of these shipments are in the luxury sector, however, and
the big-name US automakers retailing to China’s mass market, like
GM and Ford, produce their China units overwhelmingly via their
local joint ventures in China.

BMW and Mercedes-Benz, already have operations in nearby
Thailand, and in the case of a deterioration in US-China dispute,
these companies are likely to ramp up their local output to
support shipments to China, the EIU suggests.**
FILE ** In this Feb. 5, 2009 file photo, cars transit on the
streets in Shanghai, China. China’s monthly vehicle sales
surpassed those in the United States for the first time in
January 2009, moving this country closer to becoming the world’s
biggest auto market, data released Tuesday, Feb. 10, 2009
showed.AP
Photo/Eugene Hoshiko, File

US auto parts exports are likewise less exposed to the US-China
trade dispute, as they ship mostly to Canada or Mexico; shipments
to China accounted for only 5% of the total in 2017, the EIU
added.

Other trade concerns

For Asian producers in the auto sector more generally, there are
bigger concerns than the US-China
trade war.

These are the existing and onerous tariffs on steel and aluminium
imposed by the US in early 2018.

Also on the horizon is the Section 232 report from the US
Department of Commerce, which could very well slap tariffs on all
vehicles and auto parts exported to the US, based on national
security concerns.

Geely, meanwhile, can relax for a while, despite the sudden end
of its golden run, it holds a substantial 9.69% share of parent
of Mercedes-Benz, Daimler AG

Volvo sales, meanwhile, were up one-third in China year-over-year
in the January-to-September period.

Geely has a whole bunch of new models in its garage outside
Shanghai and that should be more than enough to get it back in
the winners circle.