Monday, April 21, 2008

China Pushing for Better Mileage

As oil appetite soars, China pushes mileage

Published Monday, April 21, 2008 at 4:30 a.m.

BEIJING — The Chinese government is putting pressure on automakers to improve energy efficiency, but consumers are increasingly interested in large sport utility vehicles and full-size luxury cars, auto executives said Sunday at the opening of the Beijing auto show.

The shift of the Chinese market toward larger vehicles will probably push up the country's already voracious demand for imported oil and make China an even bigger emitter of greenhouse gases.

The trend toward big vehicles is being driven by rising incomes for China's elite as well as government price controls on gasoline and diesel fuel that are keeping fuel prices below world levels as a way to limit broader inflation in the economy.

The chairman of Daimler, Dieter Zetsche, announced on Sunday that his company's Mercedes-Benz division would begin shipping GLK midsize luxury SUVs soon to China, and said that sales of Mercedes SUVs in China had doubled in the last year.

For the first two months of 2008, sales of sport utility vehicles in China were up 38 percent and sales of luxury cars climbed 30 percent compared with the corresponding period a year ago. By contrast, overall sales of cars, SUVs and minivans rose 16 percent.

The Chinese government has been demanding that automakers produce electric cars and gasoline-electric hybrid cars, and the manufacturers are complying.

Automakers like BYD of China, Daimler of Germany and General Motors unveiled prototypes of electric cars and hybrids at the auto show, and promised limited production of some hybrids, like the Buick LaCrosse, by the end of the year.

GM's chairman, Rick Wagoner, said that China's ability to enact government decisions made it a top place to introduce technologies like hydrogen-burning cars or plug-in electric cars.

But many auto executives are skeptical that Chinese consumers will be willing to pay considerably more for cars with hybrid engines and other alternative propulsion technologies while hybrids still account for less than 1 percent of the far more affluent American market.

So, unless the government heavily subsidizes vehicles with new technologies, their sales may be limited along with their effect on oil imports and emissions of global warming gases.

"Hybrids are only going to be a small, rarefied section of the automotive population," said John Parker, executive vice president of Ford Motor for Asia, the Pacific and Africa.

Ford announced instead a series of less glamorous improvements in fuel-injection technology and transmission design that are intended to improve the gas mileage of many existing models.

SUVs in China tend to be smaller than those in America and frequently use car-based designs, which are lighter and require less gasoline than truck-based designs.

But large SUVs are increasingly popular -- GM showed two Cadillac Escalade full-sized SUVs while Dongfeng, a Chinese automaker, displayed a very large, military-style vehicle that resembled a Hummer H1 but with a different grille.

Soaring demand for automobiles, with sales rising nearly 20 percent a year, has already turned China into the world's second-largest oil consumer.

China has been transformed from an oil exporter as recently as 1994 into a nation dependent on imports, mainly from the volatile Mideast and Africa, for half its oil needs.

China is holding gasoline and diesel fuel prices below $3 a gallon through heavy subsidies to companies like Sinopec involved in refining and distributing fuel.

This has helped China restrain inflation in consumer prices, which accelerated this spring to an annual pace of more than 8 percent.

But price controls on fuel have had the effect of stimulating sales of big vehicles, despite other government policies intended to discourage such sales.

Liu Shijin, a vice minister for the powerful State Council Development and Research Center, acknowledged Thursday that the government had missed a chance to raise fuel taxes earlier in this decade and now faced a difficult decision on what to do in the face of inflation.

"If the fuel is priced right, consumers will use energy more carefully," Liu said at the conference.

The government has already taken two critical steps to encourage fuel efficiency. One has been to impose vehicle taxes, ranging from 1 to 20 percent, based on engine size.

The other measure has been to require vehicles to meet stringent standards for fuel efficiency, with additional taxes of 5 to 15 percent on models that fail.

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