BEIJING - Following
rapid expansions in production capacity over the
past several years, transnational automakers in
China have greatly reduced their investment in new
assembly plants and begun to shift their
investment focus to improving the profitability of
existing facilities.
Recently, Volkswagen
announced that it will not direct any investment
into expanding production capacity for the near
term, but will continue to expand the scale of
localization for engine assemblies and other auto
accessories and parts. According to a report by
China Auto News, the majority of transnational
automakers in China worked out their production
expansion plans
in
2004, and some have made it clear that they will
only expand their production capacity in the
future in accordance with market demand.
General Motors (GM), Honda Motor and other
transnational automakers also have no new plans to
expand their production capacity in China in 2005.
With official operation of the production
facilities for complete vehicles and key parts in
Shanghai, Shenyang and
Yantai, the total production capacity of Shanghai
GM will reach 480,000 units per year. GM expects
this capacity to be sufficient for some time to
come. Honda, whose production capacity will also
soon reach 480,000 units, has not made public any
plan to further expand its production capacity.
In addition, Beijing Hyundai, Changan
Ford, Nissan, Peugeot and Citroen have announced
expansions or readjustments of their production
capacity in China last year or early this year.
Given this increasing supply of vehicles on the
domestic market, it is natural that transnational
automakers would reduce their investment in
assembly plants and focus new investments on cost
reduction, while simultaneously improving the
economic performance of existing investments, and
improving customer services.
Accordingly,
industry experts expect further investments of
transnational automakers in China to go into the
localization of auto accessories and parts, so as
to reduce the production cost of finished
vehicles. In addition, investments are expected in
auto financing services, which provide credit for
the purchase of auto products, and to logistics
supply chains. Some transnational automakers also
are investing in their marketing channels and
service networks in China. For instance,
Volkswagen has set up its Volkswagen (Beijing)
Center to support dealers across the country and
provide service for imported Volkswagen cars.
Industry insiders note that the major
factors causing transnational automakers to
readjust their investment focus in China include:
The changing supply/demand situation in the
domestic vehicle market. In general, when supply
exceeds demand for a specific product, investments
will focus on improving the productivity and
profitability of existing production facilities,
not on building up additional production capacity.
Because the supply of vehicles in China arguably
exceeds demand at the present time, many
transnational automakers in China have responded
by making greater efforts to localize the
production of auto parts, strengthen their
research and development capacity, and improve
their marketing efforts.
The maturing of Chinese customers. Auto
customers now have higher expectations of
automakers with regard to their products, prices
and services.
Changes in the competitive environment. With
the fiercer competition between foreign and
domestic automakers, the focus has shifted from
competing on output and price to competing on the
basis of brand, quality and service. So for the
years to come, the prime task for automakers will
be to build up the value of their brands, improve
product quality and perfect their marketing and
service systems.
