China's market for light vehicles will expand to 15.8 million this year, up 22 percent from 2009, despite a sales slowdown this summer, J.D. Power and Associates projects. 

At that rate, China sales will account for almost one-quarter of global sales in 2010, cementing its position as the world's largest automotive market.  

"The China market has not even begun to breathe," Tim Dunne, J.D. Power's director of global automotive operations, said in remarks at the Management Briefing Seminars sponsored by the Center for Automotive Research in Ann Arbor, Mich.  

China has fewer than 50 vehicles per 1,000 adults. The United States, in contrast, has a vehicle density of almost 1,000 vehicles per 1,000 adults. Global auto sales this year will top 67 million units, J.D. Power said.  

Over the past 15 years or so, the prosperous "first tier" cities of Beijing, Shanghai and Guangzhou fueled much of China's sales growth. Now, 32 second-tier cities will propel China's rising sales. Although they lack the high profile of Shanghai or Beijing, some are more populous than New York or Los Angeles. 

Key markets 

Car buyers in these regions tend to be more price-conscious than their peers in the first-tier cities, Dunne said. Those cities may offer automakers an opportunity to sell older car models equipped with less costly technology. 

These cities tend to be key markets for domestic Chinese automakers that can offer rock-bottom prices.

But the next phase of China's growth will pose challenges for U.S. companies that want to do business there. First, China remains a fractured market, with more than 100 automakers and 500 available models.

Second, prices are declining. Average transaction prices for premium mid-sized sedans plunged 39 percent from 2000 to 2009. Prices for compact cars fell 23 percent, and prices for entry-level mid-sized cars declined 33 percent, J.D. Power said. 

Prices will continue to decline as automakers try to clear out their inventories, Dunne said. 

No shakeout? 

Will excess inventories and price wars force an industry shakeout? Not as long as China continues to expand, Dunne predicted. Provincial governments are protective of local automakers. To protect jobs and tax revenues, each province will prop up its own automaker. 

That's why automotive profits may be under pressure even as China's market continues to expand.  

Said Dunne: "There is tremendous competition in China, and it will get more challenging over time."