- Overcapacity in China's automotive industry began to significantly increase in 2011. By the end of 2014, excess capacity stood at 16.06 million units, operating ratio dropping below 60 percent for the first time in six years. Operating ratio differs from maker to maker, European, US and Korean automakers are operating at over 90 percent capacity while Japanese at 78.8 percent.
In contrast, Chinese manufacturers' operating ratio was a mere at 43.5 percent in 2014, putting pressure on business performance.

- Chinese automakers' overcapacity problem is deeply tied to stagnating sales. Chinese consumers prefer large automobiles, while the core products of Chinese automakers are A (mini) and B (small) segment models whose market decreased 5.5 percent to 2.14 million units in 2014.

- In addition, the introduction of China 4 emission standard on diesel vehicles negatively impacted the commercial vehicle market, driving down sales of Chinese automakers. Also, registration restriction of new vehicles introduced by Beijing, Shanghai, Tianjin and other large cities increases ownership cost, turning away consumers in these cities from Chinese automobiles and channeling them toward high-quality foreign products. Moreover, foreign brands quickly reacted to stagnating sales by reducing prices, making an effort to control sales decline. Chinese automakers haphazard facility investment was another reason for ballooning overcapacity. Triggered by an over 30 percent annual increase in automobile production for two consecutive years in 2009 and 2010, local automakers built new plants without stopping for the next five years.

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