China's 24 million car market spurs trucking investment

China's car market may see annual sales of 30 million by 2020. More transportation is needed for cars and auto parts.
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TOKYO (Bloomberg) -- As automobile sales spread inland from China's crowded east coast cities and automakers boost capacity in the west of the country, companies that move cars and spare parts by truck from factories to showrooms are expanding to meet the demand.

Nippon Yusen, the world's largest carrier of vehicles by sea, plans to add more logistics centers for trucks in China. Anji Automotive Logistics, a unit of China's biggest carmaker SAIC Motor Corp., will expand the construction for collecting and distributing autos, according to its Web site.

China last year became the first country where domestic auto sales surpassed 20 million units a year and higher sales are forecast this year as car ownership increases in inland cities.

Ford Motor is building its largest production complex in Chongqing, an inland metropolis with a population greater than Chicago, while Chrysler is expanding a factory in Changsha, a city in the south-central province of Hunan with more than a million people.

Volkswagen Group is also building a new plant in the far western Xinjiang region and Nissan Motor Corp. this year will produce Infiniti luxury cars in the central city of Xiangyang.

"Many big cities along coasts are not seeing a big increase in cars as many people already have cars," Koji Endo, an auto analyst at Advanced Research Japan said. "For the next few years, growth should come from small coastal areas and rural areas in the west where car ownership is still very low and income is relatively low. Transportation is needed not just for cars but also auto parts."

China's car market will probably grow to 24 million autos this year and exceed 30 million by 2020, compared with 22 million last year, Endo said. In comparison, the United States, the second-largest car market, sold 15.6 million cars last year.

"We're expanding our network in China," Takaya Soga, a general manager of Nippon Yusen's auto logistics group, said in an interview in Tokyo on April 8. "Car sales are rapidly increasing in inland China." Anji Automotive, based in Shanghai, is the country's largest car logistics company, transporting more than 2 million vehicles annually, according to its Web site.

Anji transports cars for SAIC's ventures with General Motors Co. and Volkswagen, the country's two largest non-Chinese automakers last year.

Nippon Yusen transported 1.36 million cars in China in 2013, including some in a venture with Anji, according to figures from the company. The Tokyo-based company will probably boost trucking of vehicles to 5.7 million worldwide in 2016, from 3.7 million last year, and China's share is around 40 percent, Soga said. "More and more distribution centers are needed," Soga said. "Domestic production is shooting up."

China growth slowing

Still, the pace of growth in China's car market is slowing as anti-pollution and austerity campaigns spread. The increasing number of cars has come at the expense of air quality, leading the nation's industry ministry to warn in December that auto sales growth may slow this year as more cities cap the number of new autos to meet central government targets for reductions in air pollutants. Sales are expected to expand 10 percent this year, compared with 14 percent last year, according to the China Association of Automobile Manufacturers.

"Nippon Yusen is doing the right thing by aiming to expand in inland China," said Masaharu Hirokane, an analyst at Nomura Holdings Inc. said. "However, unless they try really hard it's going to be difficult to meet its goals. The pace of expansion in China's market is declining."

Nippon Yusen may get a boost in plans to expand its trucking business in China from its current customers. Toyota Motor Corp., Nippon Yusen's biggest customer, is predicting record China sales of 1.1 million units this year and planning further expansion. The Japanese carmaker accounts for 3.5 percent of Nippon Yusen's sales, while Honda makes up 1.3 percent, according to data collected by Bloomberg.

Nippon Yusen is also expanding into trucking in North America, where Japanese carmakers have factories, for the first time to grab a share of the market there, Soga said. The company is buying a 30 percent stake in Mexican trucker Consorcio de Servicios Internacionales for several billion yen, Soga said.

"There is the potential for them to see value added from their current customers," Nicholas Cunningham, an analyst at Macquarie Group Ltd. said by telephone in Tokyo this week. "It could be a potential positive."

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