Chinese automakers see in new normal with reducing inventory while expanding capacity

The overall Chinese vehicle market has entered in the new normal (minimal growth) period as Chinese domestic economy ushers in the new normal. The growth rates of Chinese vehicle production and sales have both dropped more than 6.9 percentage points in the first half of the year, according to the statistics of China Association of Automotive Manufactures, which are mainly contributed by the downturn in the market and the decrease of personal purchase power of Chinese people.

Faced with the new challenging situation, automakers began to react through cutting inventory while expanding capacity, which seemed on the contrary.

In order to reduce inventory, automakers have to cut vehicle selling price to promote sales. Since the beginning of April, manufactures, including Shanghai VW, FAW VW, Beijing Hyundai, Changan Ford, SAIC passenger vehicles and Shanghai GM have reduced their vehicle selling price by a large margin.

On the other hand, these manufactures also have expanded their production capacity. Changan Ford Automobile has increased its capacity through purchasing Hafei Automobile assembly plant in March. Beijing Hyundai has opened its Hebei Changzhou factory and its fifth plant in Chongqing has been under establishment, which will add the company’s overall capacity to 1.65 million units per year in 2017. In addition, SAIC-GM has made the very first move with the opening of its Wuhan Jiangxia plant of additional 240,000 units.

It may seem self-contradictory that automakers reduce inventory while expanding capacity. In fact, there is much hidden vehicle demand in China with a quite low vehicle ownership per person compared with developed countries. Therefore, automakers in China can always expand their capacity no matter how low the sales in the short period.