The Chinese auto market is slowing down image

China’s auto market was, and still is, a vital one for all major car manufacturers, but lately the pace is slowing down.

All the automakers want to be as successful as possible on China’s market. And for a very good reason, as the numbers are speaking for themselves. From 2004 to 2014 the annual auto sales went from about 5 million units to an incredible 23 million cars. For keeping up with the never-ending demand, car manufacturers had to add extra factory shifts, but these days some plants are at half of their production capacity. About 17 million units were added to the annual capacity in the last five years, although the annual sales increase is for 10,6 million cars, according to estimates by Bloomberg Intelligence. Furthermore, some new factories want to speed up the production by 10 percent for the next year, against the predictions which are pointing a slowdown in demand.

“The Chinese market is hypercompetitive, so many automakers are afraid of losing market share,” says Steve Man, a Hong Kong-based analyst with Bloomberg Intelligence. “The players tend to build more capacity in hopes of maintaining, or hopefully, gain market share. Overcapacity is here to stay.” After the Crisis, the sales were boosted by the government, which offered vast programs of financial aids, thus the passenger vehicle sales in China increased 53 percent in 2009 and 33 percent in 2010. Therefore, the massive numbers of cars led to overcrowded cities and pollution problems that, eventually, led to restrictions on vehicle registrations in major cities and, finally, to a lower demand. All these factors and too many new factories made, as a consequence, the industry’s average plant utilization dropped. The industrywide average was diminished from 100 percent in 2009 to about 70 percent today, leaving it below the 80 percent level generally considered healthy. Some local carmakers are averaging about 50 percent utilization, according to the China Passenger Car Association.

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