Chinese carmakers are starting to consolidate amidst a continued price war that highlights extreme overdemand and a weakened demand in mainland China. A report published by Bloomberg warns that Chinese carmakers are starting to feel the pinch, slicing into the profits of even the strongest brands, while also forcing smaller ones to fold.
With production utilization still at less than half (49.5 percent per a study done by Gasgoo Automotive Research Institute), the Chinese government has summoned the heads of major domestic brands telling them to “self-regulate.” In addition, it has ordered automakers to make supplier payments within 60 days, particularly to steel companies which have been struggling with little profit margin and liquidity pressure.
No doubt about it, but the price war has had a positive effect on sales last May, advancing new car sales there by 13 percent year-on-year to 2.35 million vehicles. Trade-ins and heavy discounting have fueled the growth, as did exports which rose 11 percent to 2.69 million units, including trucks and commercial vehicles. It also meant that carmakers there resorted to tactics such as dumping new cars to the second-hand market as zero-mileage cars.
However, analysts have warned that the relentless discounting will not only erode the profit margins of Chinese carmakers, but will undermine brand value. Buyers in China have already taken to social media wondering whether “they should buy a car now when it may be cheaper next week.” Some have also highlighted that brands may resort to cutting corners to stay afloat, reducing investments in quality, safety, and even aftersales service. Even the People’s Daily, an outlet controlled by the Communist Party says that it can “seriously damage the international reputation of ‘Made in China’ cars.”
It also has a knock-on effect with Chinese New Energy Vehicle brands consolidating for the first time. 16 brands exited the market in April, while 13 launched.
Dealers in China are also feeling the pain with two large groups going out of business just last month.
With the domestic market growing at a much slower pace, Chinese brands are looking to export excess production, but that can only offer some relief according to analysts. With the U.S. market completely closed, Japan and Korea may do the same if they foresee an invasion to cheap Chinese cars. Russia was the biggest export market, but it’s also becoming overcrowded; the same can be said about Southeast Asia.
Sinophobia among comrades?
ReplyDeleteIronically, this is unabashed capitalism at play.
Deletethat's the problem when there's too many. Oversupply / Less Demand
ReplyDeleteChina may now need to adjust whatever incentives that they give out, it seems too easy to attain for many businesses there.
Many of the incentives are actually localized within the provincial or city governments. It is a big boost to a province if a successful car company is in it. The competition is regional in nature too, which is why it gets really cut-throat.
DeleteI think all of these new rules are brought about by one company which is Byd. They heavily discount cars, over report sales, use dubious tactics like zero km cars, in the news they take the longest to pay suppliers to make FS look good and they are often referred to as the evergrande of cars. Even the communist party leaders feel disgusted by their actions
ReplyDeleteThat's just the natural consequence of (at least previously) limited government intervention. Telling companies to self-regulate is naively optimistic since without harsher punishment the bigger players will continue to push up to what they can get away with. Besides, if what this article says is true, that manufacturing capacity is at 49.5% (meaning that they could be making double the cars if they wanted), it means that the market needs to self correct and prices are going to go down regardless. Not to defend shady practices but BYD may have anticipated this and then decided to be first in line to drop heavy discounts.
DeleteYou are correct. Sad but true.... well, we see who in the end survives. Again, chances the loser gets absorbed. God forbid that the company just closes up and no one absorbs it.... consumer loses big time in that case.
DeleteIt'll be business as usual for major independent brands like GWM,Geely and BYD
ReplyDeleteBusiness as usual also to the state owned vehicle manufacturers filled with deep funds
Hard headed
DeleteBusiness as usual for u as well comrade, collecting 50 cents
DeleteNice try china guy, hope you get good allowance from Xijinpooh
Deletegood one there. we have an avid supporter there, nothing wrong as long as he or she is NOT paid to do that.
DeleteToo many car brands in China, EV sales dropping, greedy dealerships, cars becoming disposable as phones. Plus slowing economy in China due to slower exports, factories transferring to India and SEA adopting China + 1 + 1 strategy.
ReplyDeleteChina govt order byd to pay its suppliers with in 60 days, much shorter than its practiced of 200 days.
ReplyDeleteYour source?
DeleteThe 60-day order is in the story. As to the 200-day practice, I wouldn't know.
DeleteNikkei asia, byd
Delete