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Industry disparity widens as car sales hit potholes
By Lu Nengneng |
September 24, 2012, Monday
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Print Edition
CHINA'S car sales in the first eight months of this year rose 4 percent, stabilizing after a double-digit fall in January. But the weak recovery has opened a yawning gap between domestic and joint-venture automakers.
The domestic carmakers are on the losing end.
In terms of profit, nearly two-thirds of the 22 listed domestic auto companies reported declines in the first half of this year, including a 94 percent profit plunge at carmaker BYD.
On the other hand, SAIC Motor, which makes cars with foreign partners General Motors and Volkswagen, reported a 5 percent profit gain to 10.8 billion yuan (US$1.7 billion). That figure was equivalent to just over half the total profits of all domestic automakers combined.
Beyond the rich-poor gap on the bottom lines is a marked disparity in production capacity utilization between domestic carmakers and their joint-venture rivals.
According to a study released by consulting firm AlixPartners this month, more than half of 30 local original equipment manufacturers in China's auto industry failed to achieve between 75 percent and 80 percent capacity utilization, which is deemed a break-even level in the report. By contrast, only one of the 19 international original equipment manufacturers in China fell below that range.
Ivo Naumann, managing director of AlixPartners and head of the firm's Shanghai office, said overcapacity is one of the biggest issues facing an industry in the throes of more moderate growth rates after boom times.
Average production capacity utilization industry-wide fell from 85 percent in 2010 to 67.3 percent today.
"This is an issue that affects international original equipment manufacturers as well as local companies because the resulting price-discounting can wind up affecting the entire industry's pricing structure," Naumann said
AlixPartners' study foresees an intensifying price war across the industry, led by carmakers with the lowest utilization rates, which are mostly domestic brands that have already discounted prices as much as 15 percent in the last 12 months.
The market share of domestic passenger car brands in China dropped 2.37 percentage points to 40.3 percent this year despite the discounts.
Their dealerships in the country increased 36 percent in the past two years, while the overall number of car dealerships in China rose 21 percent in 2011, the study showed.
Only one of the six major Chinese brands sold over 600 units at each dealership last year, which was in sharp contrast to joint-venture brands and certainly to the top-selling ones that chalked up an average 1,400 units on average, the study showed.
Low productivity means that dealers have to put less investment into marketing and showrooms, which can be a vicious circle leading to lost sales, dealer closures and a bad reputation for car brands, according to Naumann with AlixPartners.
The domestic carmakers are on the losing end.
In terms of profit, nearly two-thirds of the 22 listed domestic auto companies reported declines in the first half of this year, including a 94 percent profit plunge at carmaker BYD.
On the other hand, SAIC Motor, which makes cars with foreign partners General Motors and Volkswagen, reported a 5 percent profit gain to 10.8 billion yuan (US$1.7 billion). That figure was equivalent to just over half the total profits of all domestic automakers combined.
Beyond the rich-poor gap on the bottom lines is a marked disparity in production capacity utilization between domestic carmakers and their joint-venture rivals.
According to a study released by consulting firm AlixPartners this month, more than half of 30 local original equipment manufacturers in China's auto industry failed to achieve between 75 percent and 80 percent capacity utilization, which is deemed a break-even level in the report. By contrast, only one of the 19 international original equipment manufacturers in China fell below that range.
Ivo Naumann, managing director of AlixPartners and head of the firm's Shanghai office, said overcapacity is one of the biggest issues facing an industry in the throes of more moderate growth rates after boom times.
Average production capacity utilization industry-wide fell from 85 percent in 2010 to 67.3 percent today.
"This is an issue that affects international original equipment manufacturers as well as local companies because the resulting price-discounting can wind up affecting the entire industry's pricing structure," Naumann said
AlixPartners' study foresees an intensifying price war across the industry, led by carmakers with the lowest utilization rates, which are mostly domestic brands that have already discounted prices as much as 15 percent in the last 12 months.
The market share of domestic passenger car brands in China dropped 2.37 percentage points to 40.3 percent this year despite the discounts.
Their dealerships in the country increased 36 percent in the past two years, while the overall number of car dealerships in China rose 21 percent in 2011, the study showed.
Only one of the six major Chinese brands sold over 600 units at each dealership last year, which was in sharp contrast to joint-venture brands and certainly to the top-selling ones that chalked up an average 1,400 units on average, the study showed.
Low productivity means that dealers have to put less investment into marketing and showrooms, which can be a vicious circle leading to lost sales, dealer closures and a bad reputation for car brands, according to Naumann with AlixPartners.
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