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China in reverse
gear
BEIJING - China's car
market in 2005 is forecast to be marked by
slowdown in output and sales, growth of big
enterprises, increase of export of complete
vehicles and a total reshuffle of the sector.
China's car sales dropped greatly in 2004 while
concentration of car production and sales
improved; sales of economy and medium-grade cars
increased but sales of high-grade cars declined.
As a whole, profits of the automotive sector
dropped.
As the forecasts for the 2004
auto market were proved wrong again and again,
industry experts, auto makers and dealers are wary
of making forecasts for 2005. But all of them seem
to expect that market demand will increase 10-15%
this year and the auto industry will face a
reshuffle of enterprises, especially at the
distribution end.
Vehicle output in China
posted mild growth in January compared with
December, but sales declined sharply, according to
the China Association of Automobile Manufacturers.
The nation's vehicle output totaled 406,300 units
last month, up only 0.62% from the previous month.
Meanwhile, sales of domestically made vehicles
tumbled by 25% to 243,100 units from December.
"We expect vehicle sales will grow
starting from February," said Zhu Yiping, the
spokeswoman of the auto association. However,
analysts say auto sales are expected to rebound
only during the second half of this year.
"Conditions in the domestic auto market will not
improve greatly during the first half of this year
due to customers' persistent delays in buying cars
despite frequent price cuts," said Jia Xinguang,
of China Automotive Industry Consulting and
Development Corp.
Jia predicted that both
China's total vehicle output and sales of
domestically made automobiles will grow by about
10% to 5.6 million units this year. The expected
growth is down from 15.5% last year. Vehicle
output in China stood at 5.07 million units last
year. When compared with figures from a year
earlier, vehicle output and sales last month
jumped by 35.39% and 20.68% respectively.
China's car sales reached 2.2478 million
units in 2004, an increase of 13.7% year-on-year
but 52.7 percentage points lower than the 66.4%
growth in 2003. Sales of cars started dropping in
April and even posted negative growth in September
and October, then recovered a bit in the last two
months of the year. According to the latest
statistics from the China Association of
Automobile Manufacturers, the country's top five
auto groups sold 1.8266 million cars in 2004,
accounting for 78.59% of the national total.
The top five auto makers were the First
Automotive Works Group (FAW), with sales reaching
620,900 units; Shanghai Automotive Industry Corp
(SAIC), with 617,300 units; Dongfeng Motors with
212,400 units; Guangzhou Automotive Industry Corp
with 202,100 units; and Beijing Automotive
Industry Corp with 173,900 units. The country's
top 10 car factories in terms of sales were
Shanghai Volkswagen, FAW Volkswagen, Guangzhou
Honda, Shanghai GM, Beijing Hyundai, FAW Charade,
Changan Suzuki, Zhejiang Geely, Dongfeng Peugeot
Citroen, and Anhui Chery.
The top three
brands in sales were Jetta, Santana and Charade
cars. Sales of the top 10 brands reached about 1
million units last year, accounting for 45% of the
national total sales, indicating a rising
concentration of cars sales in China. Sales of
economy cars (A00 class) increased 21.17% in 2004,
that of medium-grade (A-class) went up 24.10%,
medium-high-grade (B-class) dropped 0.2%, and
high-grade (C-class) declined 21.10%. At the same
time, Anhui Chery and Zhejiang Geely took up
two-thirds of the national export of cars last
year.
Anhui Chery had signed contracts
with 23 countries on the export of complete cars.
Its main exports included Chery Fengyun, Qiyun, QQ
and Dongfang Zhizi, totaling 8,000 units. Chery
cars were exported to Iran, Malaysia and Egypt.
The company had also set up a joint venture in
Malaysia to produce and assemble six Chery models.
Zhejiang Geely mainly exported Haoqing, Mery,
Huapu and the Meirenbao race car to Middle Eastern
and African countries. Its exports crossed 4,200
units last year. But exports were low for
Sino-foreign joint-venture companies. The reasons:
first, foreign partners of the joint ventures want
to protect their interests in the international
market and are unwilling to export their cars; and
second, Chinese partners of joint ventures give up
the right of exporting complete vehicles when
signing the contract.
China's automotive
industry realized 980.9 billion yuan (US$119
billion) in sales revenue in the first 11 months
of 2004, rising about 18% year-on-year, but 25%
lower than the growth in the same period of the
previous year. Compared with the growth of sales
revenue, profits of the whole automotive sector
dropped 7.31% year on year to 67.831 billion yuan
in the first 11 months of 2004.
China's
demand for motor vehicles is expected to reach 5.8
million cars this year, a year-on-year rise of
12%, said Xu Changming, director of the economic
consultative center under the State Information
Center. The demand for cars will be 2.75 million,
up 17% on a year-on-year basis, Xu said at a forum
on China's auto industry recently. This forecast
is premised on the rapid growth of the national
economy. China's gross domestic product (GDP) is
expected to increase 8-8.5% this year. Besides,
spending on motor vehicles has shifted from
institutional purchase to individual consumption,
which may be less affected by the country's
macro-control measures. But falling profitability
of auto makers will mean a price war in motor
vehicles.
Xu Changming lists three factors
that will lead to price cuts this year:
China's auto production capacity is expected
to reach its peak this year, with growth
outstripping demand. Auto production capacity in
2005 is estimated to be 1.8 times demand.
Enterprises that have expanded production
capacity are more likely to cut prices, including
Shanghai GM, Beijing Hyundai and Guangzhou Honda.
There is a huge inventory of cars from last
year.
Sources claim that the total
inventory of sedans itself in China has exceeded
500,000 units. High inventory has not only
occupied capital but also increased operating cost
of enterprises. Selling the inventory at reduced
prices will pull down profits and impact the
market pricing system. The fierce competition on
the market will force auto dealers to start a
cutthroat price war, forcing some of the players
out of the market. According to Lu Jinhua,
president of the Beijing Municipal Auto
Circulation Association, 450 auto dealers withdrew
from the sector last year in Beijing.
Listed Chinese auto makers are expected to
suffer losses across the board in 2005, predict
experts. Plummeting sales in 2004 have already
plunged many auto makers into the red. The inertia
of the auto market and the anticipated price war
will only add to it. Statistics from the China
Association of Automotive Industry show that 23
mainstream car makers saw their performances slide
in 2004 and four of them reported loss.
(Asia Pulse/XIC)
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