Excess capacity is China’s new worry image

Since China’s economic downturn and stock shares falling, China is not headed towards any good news too soon.
According to the Chinese Automobile Manufacturers Association, in July car sales went down 7.1% to a 17-month low, while Volkswagen also witnessed a 13% drop.
BMW’s Chinese partner, Brilliance China Automotive Holdings, also reported a 45% decline in the first half of the year, with significant decline in sales also to be registered soon by General Motors, Volkswagen, BMW and other global carmakers. SAIC Motor Corp., which has joint ventures with GM and VW, too, stated that the situation will not improve in the close future.
Besides the economic uncertainty at the moment in China, car makes are worried about the upcoming 12 months which might stand for 2 million units of additional production capacity.
Ford and Volkswagen with their Chinese partners have just opened plants there, and Ford has bought a locally owned car factory that will start functioning in 2016. Moreover, Renault and Peugeot Citroen will open up new plants in China with their partners and GM and SAIC are also going to start an assembly at a new Cadillac plant beginning next year.

A separate GM partnership with SAIC and Wuling will also open a plant for electric cars and hybrids. FCA is also supposed to start its Jeep production in 2016 together with its partner, Guagzhou Automobile Group Co. Hyundai has also added two more plants to the Chinese table, one in Changzhou in April and another one in Chongqing in June.
Ron Harbour, a partner at the consulting firm Oliver Wyman and publisher of the Harbour Report said that “There’s a high level of anxiety among the OEMs right now. There’s been a new assembly plant opening about every nine or 10 months, and a lot are in a state of construction.”

  • Robert Downie

    Ron’s observations on the global auto industry have been so insightful that he has become the “go to” guy” for observations and analysis on the direction the industry is taking.
    The annual Harbour report is packed full of analysis, commentary and benchmark data that allow any serious student of the global and regional auto industry, to cut through the PR publications and drill down into the detail of what really is going on.
    Having more than 40 years experience at the upper levels of the auto industry, I can say without doubt that Harbour data and analysis are regarded as the “gold standard” in understanding exactly what is occurring in the industry and the fundamentals that lie behind the strategies adopted by automakers.
    As China clamors to take advantage of global demand for automobiles, they are already emulating the errors made by European automakers in past decades, paramount amongst which we can count over-capacitization which will become China’s “Achilles heel” as more companies enter the market,
    I look forward to Ron’s insights in the coming months.