Automakers in China are bracing for another year of tepid single-digit growth in 2013 amid a diplomatic row with Japan.
Executives at local and foreign carmakers in China predict the overall vehicle market will grow 5 to 10 per cent this year, roughly in line with 2012, when demand was hit by a slowing economy and rising fuel costs.
Japanese carmakers will likely continue to struggle in 2013 after they saw their China sales plunge by about half in 2012 after anti-Japanese protests and boycotts of Japanese goods broke out in mid-September over a territorial dispute between the two governments.
"Japanese brands have been handicapped by the turmoil in the relationship between Japan and China. It's very difficult for one company to see how much this is going to damage the long-term prospects of Japanese companies," Carlos Ghosn, chief executive of Nissan, told reporters in a year-end briefing in Tokyo.
"What we know today is we are still down to last year. Obviously, the impact is reducing, [but] it's still significant. Will it go ever to zero? I don't know," he said, adding he forecasts the overall China market to grow at a similar pace to 2012.
Half of a dozen senior industry executives in China expect the vehicle market grow at a single-digit pace this year, according to a recent poll conducted by an industry portal, gasgoo.com. The other half predict the market to grow by around 10 per cent.
John Lawler, chairman and CEO of Ford Motors' China operations, has forecast 5 to 10 per cent in the overall market, while Bob Socia, head of General Motors' China division, has said it was likely to grow by 5 to 8 per cent.
During the first 11 months of 2012, overall vehicle sales rose 4 per cent compared with the same period a year earlier.
December has traditionally been a strong month for sales so analysts predict growth for the whole of 2012 will likely be around 5 to 6 per cent.
The market grew 46 per cent in 2009 and 32 per cent in 2010, thanks mainly to government incentives that expired at the end of 2010. Growth fell to just 2.5 per cent in 2011.
Adding to the sluggish performance of the Japanese manufacturers, further initiatives by local governments to restrict car sales to help ease the worsening traffic gridlock is likely to weigh on the overall market.
So far Beijing, Guangzhou, Shanghai and Guiyang in southwestern China have cut the number of license plates they issue. In Guangzhou, the measure, which was introduced in August, will cut annual vehicle sales by a third.
"Even a small city like Guiyang did it, so I won't be surprised if other cities follow suit sooner or later," said John Zeng, Asia Pacific director for industry consultancy, LMC Automotive.
Despite some headwinds, Zeng forecast passenger car sales to grow 10.2 per cent in 2013, up slightly from around 7 per cent as of end-November 2012.
He says if it were not for the struggles of the Japanese makers, the market could grow as much as 13 per cent.
Optimists argue that in addition to a recovering economy and pent-up auto demand in inland cities, China's new top leadership could introduce stimulus measures to spur domestic consumption that would help boost auto demand.
"There are reasons for such optimism. Whatever the market ends up with this year, I do expect an improvement of 3 to 5 per cent above that," said Bill Russo, a senior adviser at Booz & Co.