China economic situation may lead to auto mergers image

With the auto industry having obvious overcapacity according to officials, Chinese regulators said they encourage weaker car makers to merge or be acquired in the face of a problematic overcapacity phenomenon.

Qu Guochun, a deputy director at the Ministry of Industry and Information Technology said Saturday at a forum in Tianjin, China, that slowing car sales will undermine tremendously the auto business profits and lead to companies that face operational difficulties become targets to be taken over.

Lu Weisheng, a deputy director at the National Development and Reform Commission also said that there are severe problems in terms of structure in the Chinese car industry and he advised local carmaker to increase their expansion overseas.

China’s two main auto industry regulators made these assessment after the Association of Automobile Manufacturers in China announced last week its would lobby the government to take into account stimulus measures to increase new cars demand. Its propositions included cutting 10% from the purchase taxes of new cars and raising the limit on the number of new vehicles that can be bought.

Shi Jianhua, the deputy secretary general of the auto association, stated at a briefing last week that “To build a strong auto nation, we need the government’s help to boost demand. Vehicle demand has a close correlation with economic growth and infrastructure investment.”

The China Auto Association has estimated that sales will grow at the lowest pace in the region in the last four years and explained that buyers in China are putting of new car acquisitions in the face of a recent Chinese auto market downturn and stock shares downfall. However, dealers did extend unprecedented discounts to lose inventory, which poses a problem for carmakers’ profitability there.

  • Lawrence

    Consolidation has been promoted by Beijing for some time now, but the mergers of state owned companies are resisted, and when they do occur, don’t seem to thrive. Some might say it’s regional protectionism combined with provincialism. When the inevitable submission of the weak does happen there will need to be a better strategy to handle it.