Ford and GM have renewed faith in Chinese consumers

The Chinese are expected to buy a lot of cars in the future.

The two most important auto markets in the world are the US and China.The US is the most competitive – if you can make it here, you can make it anywhere.

China is going to be be the world’s biggest market; already, it’s surpassed the US, with more than 20 million in annual sales versus about 17 million in North America.

In the past, big car makers were betting on China as their key play for the future. Aggressively bullish projections for the scale of yearly auto sales in the Middle Kingdom were coming in at 40 million.

But in 2015, some concern set in, as China’s runaway growth rates endured a pullback.

For several quarters, automakers like GM and Ford were routinely asked to address their China expectations and gauge whether they were anticipating too much.

Now the industry seems to think that China has stabilized and that solid growth for both mass-market and luxury sales will resume.

This couldn’t be happening at a better time because the US market is finally beginning to show some signs of plateauing at a sales pace of 16-17 million new vehicles per year.

For example, after running at a 17.5-million pace for the first few months of 2016, matching last year’s record, sales retreated by a notable 1 million units in March: the pace was 16.5 million, due largely to a pullback by GM on fleet sales, which could take nearly half a million in low-margin deliveries off the table by December.

The problem here us that when sales growth vanishes in the US, a downturn doesn’t generally follow. Usually, the market flattens, and this means that the automakers selling cars and trucks here start to revert to bad habits. They raise incentives, cutting into their profits, and they compete against each other to maintain market share. This leads to a frittering away of margins and a lack of bold spending on future models.

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