BY ALAN ABRAHAMS
At precisely the moment General Motors in the US applied for Chapter 11 bankruptcy the two Chinese joint ventures they are involved with reported record sales within their domestic market.
One, Shanghai GM, the j-v with Chinese car maker SAIC Motor claims that their sales are up a whopping 50% over last year. Sales in May alone reached 56,000 units, mostly under the Buick name.
This can only be good news as many leather manufacturers have come to rely increasingly on the auto industry. It’s an attractive market because the leather tends to be high-end, carries better margins and, of course, each vehicle uses a lot of leather.
Demand for leather upholstery in cars is significantly higher in Asia generally than in older markets such as the US or European Union(EU). Whereas top marques, such as Mercedes or Jaguar, have always provided leather as standard (you have to make a special order not to have it installed), in mid-level cars it’s usually an optional extra. Not so in Asia,apparently, where local buyers typically insist on leather even for quite inexpensive vehicles.
What is particularly encouraging for leather manufacturers in this market is that Chinese car sales generally are going gangbusters. GM’s other j-v, this one with SAIC Motors and Liuzhou Wuling Automobile, sold 100,258 vehicles in May, mostly minivans: the first time any Chinese motor manufacturer has exceeded the 100,000 unit monthly sales mark.
Meanwhile, China’s biggest automaker, Chery Automobile has just raised 2.9 billion yuan from local investors. Although leather upholstery in lower-end cars may be limited what is encouraging is that it demonstrates Chinese consumers are buying at all levels: it’s not just the rich buying luxury brands.
Next to buying a home making a purchase of a car is usually the second largest financial outlay for Chinese buyers as it is in all western markets. Moreover, some analysts believe that prices may start rising again in the second half of the year so now would be the time to buy a high costs item like a car.
Just to rub the story home, in the US GM sales plunged 50% in the first quarter of 2009.
