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Overcapacity, slack demand loom as a double whammy
By Jin Jing |
February 20, 2012, Monday
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Print Edition
Print Edition
CHINA'S auto industry is facing the twin specters of overcapacity and slower market demand, according to recent reports.
About 51 percent of 200 global automotive executives surveyed by KPMG said they believe China will become the most over-supplied market by 2016 among the four so-called BRICs: Brazil, Russia, India and China.
The global automotive market is predicted to be 20 percent to 30 percent over capacity in that same year, the report's findings showed.
Surging demand in recent years has spurred aggressive production expansion of carmakers, both at home and abroad.
The US and Europe hit levels of overcapacity that hurt their domestic automakers. Is China next?
Last year, vehicle sales growth in China slowed to 2.5 percent, the lowest 13 years, from a 32 percent surge in 2010. The brakes came after the central government phased out purchase incentives for auto buyers and after several mega-cities slapped restrictions on vehicles to ease worsening traffic gridlock and pollution.
Dong Yang, secretary general of the China Association of Automobile Manufacturers, said he expects car sales to grow at a more moderate pace in the near future.
According to market research firm LMC Automotive, China had unutilized capacity of 6 million vehicles last year, which will rise to more than 9 million in 2016.
"But most auto executives still seem to regard the risk of overcapacity and excess production as a necessary evil to remain their competitive edge," KPMG said.
"Balancing capacity building and production volumes will be of utmost importance for original equipment manufacturers striving to expand their global footprint while keeping down fixed costs to maintain healthy margins."
Some of the new plants due to open in the near future in China involve Volkswagen, General Motors, Kia and BMW. That is in addition to production expansion at existing facilities planned by FAW-VW and Mercedes-Benz.
China's domestic carmakers, including Geely, Chery and Great Wall, are also adding capacity.
Meanwhile, KPMG's report predicted that Chinese automakers would remain active in overseas mergers and acquisitions.
Andrew Thomson, co-head of Automotive KPMG in China, said reduced asset prices and financial uncertainties, especially in the Eurozone, are likely to stimulate M&A activity, creating opportunities for Chinese automakers.
"Chinese companies will probably be involved in sub-US$200 million deals in the components sector, particular for power-train technologies, advanced electronics, safety systems, new energy innovations and key materials," he said.
In January, Zhejiang Youngman Lotus Automobile said it is still keen to buy Saab Automobile, the Swedish carmaker that's filed for bankruptcy.
Yongman and another Chinese company, Pang Da, earlier attempted to take over Saab but were blocked by the carmaker's previous owner, General Motors, on technology-transfer concerns.
About 51 percent of 200 global automotive executives surveyed by KPMG said they believe China will become the most over-supplied market by 2016 among the four so-called BRICs: Brazil, Russia, India and China.
The global automotive market is predicted to be 20 percent to 30 percent over capacity in that same year, the report's findings showed.
Surging demand in recent years has spurred aggressive production expansion of carmakers, both at home and abroad.
The US and Europe hit levels of overcapacity that hurt their domestic automakers. Is China next?
Last year, vehicle sales growth in China slowed to 2.5 percent, the lowest 13 years, from a 32 percent surge in 2010. The brakes came after the central government phased out purchase incentives for auto buyers and after several mega-cities slapped restrictions on vehicles to ease worsening traffic gridlock and pollution.
Dong Yang, secretary general of the China Association of Automobile Manufacturers, said he expects car sales to grow at a more moderate pace in the near future.
According to market research firm LMC Automotive, China had unutilized capacity of 6 million vehicles last year, which will rise to more than 9 million in 2016.
"But most auto executives still seem to regard the risk of overcapacity and excess production as a necessary evil to remain their competitive edge," KPMG said.
"Balancing capacity building and production volumes will be of utmost importance for original equipment manufacturers striving to expand their global footprint while keeping down fixed costs to maintain healthy margins."
Some of the new plants due to open in the near future in China involve Volkswagen, General Motors, Kia and BMW. That is in addition to production expansion at existing facilities planned by FAW-VW and Mercedes-Benz.
China's domestic carmakers, including Geely, Chery and Great Wall, are also adding capacity.
Meanwhile, KPMG's report predicted that Chinese automakers would remain active in overseas mergers and acquisitions.
Andrew Thomson, co-head of Automotive KPMG in China, said reduced asset prices and financial uncertainties, especially in the Eurozone, are likely to stimulate M&A activity, creating opportunities for Chinese automakers.
"Chinese companies will probably be involved in sub-US$200 million deals in the components sector, particular for power-train technologies, advanced electronics, safety systems, new energy innovations and key materials," he said.
In January, Zhejiang Youngman Lotus Automobile said it is still keen to buy Saab Automobile, the Swedish carmaker that's filed for bankruptcy.
Yongman and another Chinese company, Pang Da, earlier attempted to take over Saab but were blocked by the carmaker's previous owner, General Motors, on technology-transfer concerns.
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