China’s auto industry will likely begin to consolidate from next year as slowing demand and rising materials costs hit margins, an official in the country’s top planning agency has said.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
“Some weak brands and less competitive players will start to be pushed out next year,” Cheng Xiaodong, head of the vehicle-price monitoring arm of the National Development and Reform Commission, told Bloomberg News. “Local automakers with small profit margins will be hit first.”
Consolidation among Chinese carmakers began with SAIC Motor, the country’s largest automaker, taking over Nanjing Automobile Group’s automaking assets, including the MG brand, last year, the news agency noted, adding that other attempts had been hindered by the fact that most of the other major automakers are owned by central or local governments.
According to the report, Chinese carmakers have been forced to slash prices recently,despite rising steel costs, to stand out among the 52 brands on sale, the most in any country. But car sales have fallen in the last two months as rising fuel prices and a 64% share market slump affect demand.
“In a downturn, only strong players can survive,” Shanghai-based CSM Asia analyst Huang Zherui told Bloomberg. “Local carmakers may be hit the most by slowing demand as buyers of their vehicles have less purchasing power than motorists opting for higher-end products.”’
Dongfeng Motor Group, the country’s second-biggest listed automaker, posted a record plunge in Hong Kong trading on concerns it would have to buy other carmakers, the report said.
“It will be a painful process for major automakers like Dongfeng to absorb smaller players,” Sinopac Securities Asia analyst Vivien Chan told the news agency. “They will have to go that way though, given that it’s the direction set by the government.”
Bloomberg News said China’s local brands are being squeezed because rising wages enable drivers to buy more expensive foreign-brand models. For example, Chery Automobile, the country’s largest carmaker without an international partner, was ranked sixth in car sales in the first nine months of 2008, compared with fourth for all of 2007. The top two spots were taken by Volkswagen joint ventures in both periods.
In addition General Motors and Toyota have boosted investments in the country to offset slowdowns in the US, Europe and Japan, Bloomberg noted.
Car sales in China doubled in the five years to 2007, and rose 11% to 5.1 million in the first nine months of this year while US sales dropped 13% in the first nine months and European sales dipped 4.4%.
Analyst Cheng reckoned competition may force local automakers to cut car prices as much as 3% this year after the country’s inventory of unsold new vehicles reached a four-year high of 170,000 at the end of last month.
Prices had fallen 2.1% in the first nine months while Toyota and Mazda have both made temporary production cuts because of slowing demand, Bloomberg added.
