Variety of factors causing alarm in the Chinese automotive industry

The current slowdown in sales growth rates for the Chinese automotive market have had many analysts worrying about the health of the industry.

According to statistics from the China Association of Automobile Manufacturers, a total of 1.99 million automobiles were sold in the country in April, down 0.5% from the previous year. The year-on-year growth rate for passenger automobile sales was only 3.7%, the lowest growth rate in the last two years.

Another troubling statistic was the rising automobile inventory levels. The average time for automobiles in inventories was 1.77 months, up a full 28 percent points from the previous year.

Furthermore, Chinese passenger automobile imports fell once again in April, decreasing 19.9% from the previous month and down 17% from the previous year. The country’s passenger automobile imports for the month totaled 104,600 units. Earlier this year, CAAM predicted that passenger automobile imports this sale would increase 7% this year, totaling 860,000 units by the end of the year. However, looking at current statistics, it will be very hard for the Chinese automotive industry to achieve these figures.

One of the major issues hindering the development of the industry is the lack of production capacity that domestic own brand manufacturers are able to harness. BYD, Chery and JAC were only able to make use of 40% of their total production capacity. Even Geely, Great Wall and SAIC were not able to utilize more than 70% of their production resources.

This phenomenon has led many analysts to predict that the pace of mergers in the industry will continue to accelerate. DCA Chinese Affairs Analyst Jean-François Dufour remarked that the largest problem with the Chinese automobile manufacturing industry is the fact that its resources are excessively dispersed.

However mergers between major automotive manufacturers would also end up influencing the operations of multinational companies involved in Sino-foreign joint venture enterprises. This is yet another factor that these manufacturers will have to consider when coming up with future development plans.