Report: Car manufacturers will face new overcapacity image

As automakers grapple with the inevitable changes that will shape the future of the sector, overcapacity continues to be a chief concern in both mature and emerging markets.

Almost two-thirds of KPMG study respondents believe the US is the most overbuilt with Japan and Germany following; interestingly enough even China and India are expected to reach noteworthy overcapacity within five years.

“Overcapacity in China is a consideration but if we do not invest in our plants then we’ll miss out on sales opportunities. It’s a risk worth taking,” said Bernd Pichler, Managing Director, Volkswagen China.

The problem of overcapacity also seems to be affecting emerging markets, with China and India both expected to be overbuilt within the next five years; in 2010 most thought this timeframe would be five-to-ten years. Over a quarter of executives expect China to be overbuilt by more than 20 percent by 2015.

BMW 7 Series production line

Given the accelerating pace of domestic sales growth in emerging markets and the substantial investment that has already gone into building production capacity in those markets, accurate forecasts are hard to make

While acknowledging the challenge of overcapacity, many OEMs are still investing in manufacturing plants for cars and trucks in China and India, as they are concerned about losing out to competitors. The respondents differed on how to address this issue, with consolidation amongst automakers seen as the single most effective way to reduce overcapacity. While auto companies also feel they can increase vehicle exports into existing and/or new markets, this option may be limited, as OEMs are rapidly building factories in many of these countries, thus reducing their own export opportunities.

It remains to be seen how sustainable this market presence will be; and how flexible these facilities could become if demand changes.

MOREOVER, the growth rate of the Chinese automotive market will slow down to 15 percent in 2011, and down further to 8 percent in 2005, First Financial Daily reported Tuesday, according to Roland Berger, a Germany-based market consultancy.

Roland Berger pointed out in its recent report “Chinese automotive market: How long will the party last?” that private vehicle sales in China will exceed 11 million units this year.

China’s private vehicle market, which has experienced tremendous development in the past ten years, witnessed strong annual growth of 35 percent from 2011 to 2007, mainly driven by booming sales of private vehicles that rose by 50 percent in 2008 helped by government incentives.

And international auto companies also benefited greatly in the process, for instance, the European auto parts suppliers gained 20 percent of its total revenues from China last year.