Overcapacity of the Chinese Automotive Industry: Reorganization Becoming Urgent Issue
- Due to overcapacities, some local automakers, which face mounting business difficulties, are bought by Sino-foreign joint ventures.
In March 2015, Changan Ford announced that it purchased Hafei Motor's manufacturing facility in Heilongjiang province, leaving the Chinese automaker only with one plant in Shandong province. Annual production capacity of the acquired plant is 200,000 units. Changan Ford intends to keep the existing production line, which was used for the manufacturing of Changan Automobile's Alsvin V3, and install a new production line as well for Ford brand models.
In March 2015, Changan Ford announced that it purchased Hafei Motor's manufacturing facility in Heilongjiang province, leaving the Chinese automaker only with one plant in Shandong province. Annual production capacity of the acquired plant is 200,000 units. Changan Ford intends to keep the existing production line, which was used for the manufacturing of Changan Automobile's Alsvin V3, and install a new production line as well for Ford brand models.
- Although the purchase of local automakers by Sino-foreign manufacturers is one way of dealing with overcapacity, it could also cause the rapid decline of Chinese automakers. Therefore, the central government cannot actively promote such trend in the automotive industry.
- For this reason, in order to resolve the issue of overcapacity, Chinese automakers should engage in reorganization and consolidation.
In China, there are dozens of local automakers which were set up by regional governments in an effort to develop the local economy; however, many of them suffer from low operating ratio. Medium and small automakers should be absorbed by SAIC, Changan, Dongfeng and other major Chinese manufacturers in order to eliminate overcapacity. In the long term, product appeal of large Chinese automakers must be improved to adequately address overcapacity. Instead of forceful reorganization directed by the central government, R&D support would be necessary to boost product power.
In China, there are dozens of local automakers which were set up by regional governments in an effort to develop the local economy; however, many of them suffer from low operating ratio. Medium and small automakers should be absorbed by SAIC, Changan, Dongfeng and other major Chinese manufacturers in order to eliminate overcapacity. In the long term, product appeal of large Chinese automakers must be improved to adequately address overcapacity. Instead of forceful reorganization directed by the central government, R&D support would be necessary to boost product power.
- Regarding the Chinese automotive market, low growth is projected to continue in the coming years. Therefore, if Chinese automakers cannot tackle overcapacity early on, they will fall even further behind Sino-foreign manufacturers.
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