In the Fast Lane: Tax cuts, subsidies and big stimulus propel Chinese markets past U.S.

Credit: AP Photo

China has become the first country to buy more vehicles than the United States, a shift that could produce ripples for the environment, gas prices and even the kinds of cars that automakers design. More than 12.7 million cars and trucks will be sold in China this year, according to J.D. Power and Associates, helping add to the congestion of highways like this one in Beijing.

By: JournalNow Staff | THE ASSOCIATED PRESS
Published: December 11, 2009

SHANGHAI --

China has overtaken the U.S. as the world's biggest market for automobiles, the first time that any country has bought more vehicles than the United States, the nation that produced Henry Ford, the Cadillac and the minivan.

Now that the Chinese buy more cars and trucks than Americans, the shift could produce ripples for the environment, gas prices and even the kinds of cars that automakers design.

More than 12.7 million cars and trucks will be sold in China this year, up 44 percent from the previous year and surpassing the 10.3 million forecast in the U.S., according to J.D. Power and Associates.

China has long been expected to overtake the U.S. since its population of 1.3 billion is more than quadruple that of the United States. But the increase in sales happened much faster than anyone expected because of China's tax cuts, its stimulus program and a depressed American market.

Two years ago, J.D. Power predicted that China would pass the U.S. in 2025. Earlier this year, it forecast 2009 sales of just 9 million vehicles for China.

After a sharp slowdown in auto sales late last year, the Chinese government cut taxes on small cars and spent $730 million on subsidies to encourage sales of SUVs, pickups and minivans. A big stimulus program also boosted truck sales by pumping money into construction.

Auto sales were expected to rise with China's stimulus, but they have far exceeded expectations, said Jeff Schuster, J.D. Power's executive director of automotive forecasting.

Improving sales of autos and other big-ticket items is key to Beijing's strategy to promote stronger domestic consumption and lower dependence on exports.

"The government has sent a very clear message that they will not let the auto industry weaken, especially in 2010," say Jia Xinguang, the chief analyst at China National Automotive Industry Consulting & Developing Corp.

Meanwhile, U.S. sales hit a 26-year low in early 2009 and remain well below the 17 million average from earlier this decade.

China's sales may grow so large that cars designed for Chinese tastes could eventually be sold globally, the way that U.S. vehicles are now.