BEIJING -- Sales of passenger vehicles in China (including passenger cars, SUVs and minivans) are expected to increase from 8.7 million units in 2009 to 13.55 million units in 2015 — an increase of more than 55 percent, according to a special report titled “China Automotive 2015: The Cost of Opportunity,” just released by J.D. Power and Associates.

The report examines the future of China's automotive industry and the challenges that automakers face in one of the world's fastest-growing vehicle markets.

Larger automakers and long-established brands have recorded substantial profits in the past few years in China, according to the J.D. Power report. This was especially true in 2009, when government stimulus and massive bank lending — the equivalent of one-third of China's gross domestic product — translated into soaring vehicle sales and record profits for many automakers. This kind of stimulus, however, cannot continue indefinitely, says the global marketing information firm.

"China's rapid growth makes the automotive market highly attractive and almost irresistible to any automaker," said John Humphrey, senior vice president of global automotive operations for J.D. Power and Associates. "However, for many brands, achieving their profit aspirations in China in the coming years will be far more challenging."

There are numerous market and structural obstacles that automakers must overcome in China, J.D. Power notes, including hyper-competition, potential consolidation and proliferation of product, among other things.

Among the 13.55 million passenger vehicles that are projected to be sold in China in 2015, approximately 57 percent will be sold in the lower-margin subcompact and compact car segments. Within these two segments alone, there will be more than 125 vehicle models for consumers to choose from. In comparison, only 22 percent of passenger vehicles forecasted to be sold in the United States in 2015 are expected to be subcompact and compact models, while 57 percent of passenger vehicle sales are expected to be higher-margin luxury car, SUV, pickup and minivan models.

Total factory production capacity for passenger vehicles in China is expected to reach 19.6 million units by 2015, although the rate of capacity utilization is projected to be only 66 percent.

"The low rate of capacity utilization projected for 2015 will likely cause another dilemma for automakers in China, as factories typically need to achieve at least 80 percent capacity utilization to cover the high amount of fixed costs," said Humphrey. "As a result, automakers will be forced to look for ways to alleviate the financial stress these loss-producing operations cause, including options of consolidating, increasing exports and investing in more efficient flexible manufacturing technologies."

There are more than 13,000 vehicle dealerships currently operating in China. Approximately one-third of dealers report that they are operating at either a financial break-even point or at a loss. Most of these dealers depend on profits from new-vehicle sales to remain in business. Because new-vehicle prices will continue to come under increased pressure, there will be greater attrition of marginally performing retail outlets.

"Dealers in China will need to find new sources of revenue and profit to remain viable in the future," said Humphrey. "The retail landscape in China is going to undergo dramatic change in the coming years."