Date
20 August 2017
Even dealers of luxury cars are finding it harder to make money as the mainland’s auto market continues to slow. Photo: Bloomberg.
Even dealers of luxury cars are finding it harder to make money as the mainland’s auto market continues to slow. Photo: Bloomberg.

A not-so-happy new year awaits Chinese auto firms

More than 100 auto makers could be stuck in a slow-moving China market this year and perhaps for the coming years.

“The US market has failed to break through 17 million annual cars sales for years. China may also have hit the glass ceiling,” 21st Century Business Herald quoted auto columnist Zheng Zhiyong.

Last year, nearly 23.5 million cars were sold in China, less than 7 percent higher than in the preceding year.

It was the third time in four years industry growth had slipped under 10 percent.

With the overall slowdown in China’s growth, single-digit GDP expansion is generally believed to be the new norm, and that is probably also the case for the auto sector, making life more difficult for carmakers.

No detailed statistics are needed to know how badly the industry has fallen on hard times.

Soon after 2015 began, China Youngman Automobile Group Co. was reported to be suspending its factories and not being able to pay its workers and creditors.

Also rarely seen is dealers of premium car brands demanding more subsidies. The sector used to be one of the most profitable in the car business but many small operators are said to have lost money last year.

As the market expands too slowly, overcapacity will become more acute. Low factory utilization rates will further cut into margins, especially for indigenous brands, 21st Century Business Herald said.

Other bumps in the road include the prospect of more cities introducing car purchase curbs under pressure from pollution and traffic congestion.

SUVs and new energy cars could be bright spots but sales of the former, which grew 38 percent in 2014, look set to slow — already one in five passenger cars in China is an SUV, near the level in the US, which is about 28 percent.

As for green cars, sales quadrupled last year and growth is likely to stay high given all types of government support.

But a lot of car companies are squeezing into the sector. The relatively small overall market size and intensifying rivalry mean its chances of becoming a major profit center are low.

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RA

EJ Insight writer

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