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September 16, 2015

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Home » Business » Auto

Major carmakers slash Chinese output, salaries

VOLKSWAGEN and other major carmakers have begun reining in Chinese output, wages and other costs, industry sources said, as executives at the Frankfurt auto show put a brave face on a sharp slowdown in the world’s biggest vehicle market.

The German car giant’s Chinese joint venture, FAW-VW, is canceling staff bonuses and cutting shifts at its plants near Changchun in Jilin Province, people with knowledge of the matter said. The bonuses being scrapped typically account for more than half of the assembly-line workers’ take-home pay.

Volkswagen’s high-end Audi brand also said it had cut output at its Chinese plants, trimming the working week to five days from seven in response to lower demand for models such as the A6 saloon.

And German rival BMW said yesterday that it had cut output of its locally produced 3 and 5 series models. “We reacted relatively fast,” Chief Financial Officer Friedrich Eichiner said. “We are not stockpiling.”

Car sales in China, until recently the profit engine for automakers around the world, have been hit by a cooling economy and a plunging stock market. Demand was flat in the first eight months of the year and could drop in 2015 for the first time since the market took off in the late 1990s.

At the opening day of the Frankfurt auto show yesterday, industry executives expressed confidence about the long-term growth potential of the Chinese market, and said any short-term decline could be offset by a strengthening recovery in Europe.

Industry data showed European car sales jumped 11.5 percent annually in August.

But some analysts said the Chinese slowdown was coming at a time when carmakers are still opening factories in the country — creating an excess of capacity that could weigh on profits.

Leading research group IHS Automotive expects carmakers’ capacity utilization rates in China to decline to 65 percent from last year’s 70 percent, a key profitability threshold.

“The mood is very depressed at VW, BMW or GM,” said Clemens Wasner of Austrian automotive consultancy EFS, which advises several German carmakers in Asia.

China has accounted for more than half of VW’s profit in recent years and about 40 percent at GM, which is pursuing a US$14 billion expansion in China with its Chinese partners.

Both VW and GM have already begun trimming local production — by around 5 percent in July — according to one China-based consultant.

A GM spokesman said the company’s business model in China was “fundamentally different” from most of the other major multinationals, with large investments in a wide array of brands including local ones in segments where sales were still rising.

GM China chief Matt Tsien said in May that GM was determined to keep operating margins as high as 9-10 percent by selling more SUVs and higher-end cars. It ruled out a significant review of its China plans as recently as July.


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