Wednesday, June 07, 2006

Chinese Automakers face inventory woes

Jin Jing
2006-06-07
AUTOMAKERS in China face a difficult question of how to survive in a market that is oversupplied. Domestic sales expanded by double-digits in the past five year, yet auto manufacturers face tough decisions on whether to cut production in the world's most promising auto market as regulators are drafting rules to curb excessive investment in the sector. "China produced 2 million vehicles more than needed last year," said Ma Kai, the director of the National Development and Reform Commission early this year. "About 2.2 million units were being built while future plants will be capable of producing more than 8 million additional units." That potential production might be far beyond market demand as domestic vehicle sales were estimated to reach 9 million units by the end of 2010. Massive stockpiles would force carmakers to launch endless price wars to maintain competitiveness and in the process shrink profit margins. Not surprisingly, many domestic auto producers have shifted focus to exports, second-tier cities and niche markets to sell excess vehicles. China's auto exports are growing faster year on year and are expected to be a driving force in helping carmakers reduce inventories. With a cheap labor force domestic automakers have an advantage in bringing products under their own brand to overseas markets. Chinese models were 50 percent cheaper than those produced in Europe and 30 percent cheaper than Japanese and South Korean models. China's auto exports exceeded imports for the first time last year. The country exported 11,031 units more than it imported. Exports more than doubled from 2004 to 172,639 while imports dropped 8 percent, according to the Ministry of Commerce. Top exporters Last year, First Automotive Works Corp, Greatwall Automobile Corp and Jiangling Automobile Co Ltd were the top three exporters. Chang'an Automobile Corp, Chery Automobile Co Ltd and Geely Automobile Holdings Co also export vehicles. Growing exports could be a good way to not only help domestic automakers reduce inventories, but also build a strong international brand awareness of Chinese-made vehicles. So far, export vehicles were dominated by sports utility vehicles, trucks and minibuses. However, more and more companies were taking measures to bring sedans to foreign markets. Geely, one of China's leading private automakers, has aggressive plans to export two-thirds of its cars by 2010. Chery also aims to sell its cars on the US market as the first Chinese car to tap the largest car market. Geely, Chery and Great Wall - China's largest truck exporters - were building up sales channels and after sale networks to better support ambitious plans. Chinese companies also need to improve technology to meet higher standards for safety and emissions in developed nations. Chinese car manufacturers export most vehicles to developing nations. According to a drafted blueprint for China's auto industry in the 11th Five Year plan, exports of auto products are expected to increase 40 percent and volume is expected to reach US$7 million by 2010. The strategy calls for Chinese-made vehicles to account for 10 percent of the global auto trade in the following 10 to 15 years.

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