The Chinese auto market is like a piece of cake on the table. In order to continue enjoying its sweetness, the company continues to add ingredients to it and throws up the swelling agent. As the size of the cake continues to expand, it is time to consider when it falls from the edge of the table.
Before that, we could still hear calm car dealers talking about sustainable development, and from time to time they issued warnings of overcapacity or cold markets. However, the Chinese auto market has broken all doubts with its rapid growth of more than a decade. The gamblers have repeatedly succeeded, but the cautious have missed the opportunity for growth. Ever since, we have seen that the gambling mentality has gradually become the mainstream. Even if some individuals have concerns, they will be self-confidence: it must be someone else's cake to fall, and they will be able to outperform the broader market.
As a result, those who are driven by the frantic auto market will only have the courage to go forward. After experiencing low growth in 2011 and a bland start in 2012, it is time for us to revisit this issue: Where is the watershed for the overall decline in China's auto industry? The image says that the temperature of the “water” of boiled frogs will not allow the frog to lose the last chance.
Why is it that recently in 2015, KPMG, a well-known analyst firm, pointed out in the latest survey report that in 2016, the Chinese auto market will be the most serious problem of oversupply in the BRIC countries. The survey interviewed 200 automotive executives worldwide, and more than half of respondents believe that overcapacity and oversupply will be the major issues facing the Chinese auto industry in the future.
This is an overall survey based on the BRIC countries. According to the information held by reporters, the Chinese market will honor this prediction ahead of schedule in 2015 because Chinese people like to achieve their goals in 5 or 10 years. The superimposed goal, or the soaring of expected production capacity, will become a catalyst for the overall deterioration of the Chinese auto industry.
On March 16, Vice Governor of Jilin Province, Chen Weigen, said that Jilin will continue to strengthen its investment in the automotive industry. During the “12th Five-Year Plan” period, it will focus on building a world-class automotive production base. In 2015, the total vehicle production capacity will reach 4 million.
On the following day, Zhengzhou Nissan reported that after the Zhongyi No. 1 Plant and the Zhengzhou No. 2 Plant, the No. 3 Zhengzhou Nissan Plant has been approved and is currently being selected. It is tentatively scheduled around the existing Zhongxu Plant. At the same time, the Zhongyi I plant is being expanded and is expected to be completed next year, with the production capacity increasing from 100,000 to 180,000.
By 2015, SAIC Motor's capacity will be planned for 6 million vehicles, and FAW Group, Dongfeng Group and Chang'an Group will be locked in 5 million vehicles. The production capacity of BAIC and GAC is planned to be 4 million vehicles and 3 million vehicles respectively, plus the capacity planning of independent brands Mainstream Enterprises such as Chery, Geely, BYD, and Great Wall will all exceed 2 million... Simply the top 15 automotive groups in China Together, the total capacity will easily exceed 43 million vehicles.
At present, there are more than 20 provincial-level administrative units in China that have identified automobiles as pillar industries. There are more than 130 vehicle companies, ranking first in the world. Some people say that the real estate industry has kidnapped the government and banks and made the regulation incapacitated. Nowadays, the auto industry has also far deviated from the laws of the market. Crazy expansion is partly inseparable from the achievements of local governments and the growth of GDP.
The question is: Why hasn't overcapacity attracted policy makers? We have seen that in the past few years, despite the volatility in the market, many car companies such as Shanghai GM, FAW-Volkswagen, Dongfeng Nissan and Beijing Hyundai have all created growth myths. No one will be cautious in front of mythology. To face, because cautious means a bigger gap with the competitors. The demarcation point of the overall decline of the Chinese auto industry must be the vast majority, and even if all the car companies do not have a production bottleneck; only in this way, the myth can be ended, all aspects can really face the excess capacity.
In 2015, Audi will have a production capacity of 700,000 units in China. At the same time, BMW and Mercedes will double their capacity in China. This means that the luxury brands that currently have the least capacity will completely overcome this obstacle in 2015. Judging from the information publicly disclosed by auto makers, according to the current rate of expansion, China's auto industry will be hard to find a car manufacturer with insufficient capacity in 2015.
Recession clouds have emerged?
What is the limit of annual sales in China's auto market? In terms of more than 17 million vehicles in the heyday of the United States, combined with energy supply and hardware conditions such as roads and parking, 25 million vehicles should be the most objective estimate, and about 20 million vehicles are conservative.
What is troubling is that, compared with previous years, the 2011 year-on-year ratio of production and sales was less than 10%, which has been referred to by many as a “hard landing” in the auto market. A series of problems such as the decline of self-owned brand share and the sluggish sales of Japanese brands began to emerge.
In 2012 after the “hard landing”, in the face of pessimistic forecasts of industry growth of around 5%, most car companies still have plans to “outperform the broader market”. FAW-Volkswagen's target this year is locked at 1.2 million vehicles. 16.5% year-on-year increase; Dongfeng Honda 300,000, an increase of 17.6% year-on-year; Dongfeng Nissan is expected to increase by 25%; Shenlong Motors is 18.8%; GAC Toyota is 27%, Audi is more than 20%, and some imported brands even exceed 50% .
At the same time, the market is not optimistic. In the first two months of this year, passenger cars produced a total of 2.9935 million vehicles and 2.954 million vehicles, which was a decrease of 4.9% and 6.0% year-on-year respectively. In response, the China Association of Automobile Manufacturers commented that the production and sales of the auto industry have shown signs of decline and there has been negative growth that has not been seen for many years.
The data shows that the year-on-year decline in car sales is being fully scaled up. Sales of Changan, Shanghai, Chery, Haima, and Brilliance in their own brands all fell by more than 20% year-on-year. FAW Car fell more than 40% year-on-year, and Huatai reached 75%. More and more joint ventures have also begun to join this rank. Among them, Guangzhou Automobile Honda, Dongfeng Honda and Changan Ford Mazda all fell more than 10% year-on-year. Among the companies with sales growth, only Shanghai GM and Dongfeng Yueda Kia increased by more than 10%.
How to deal with the danger of turning bad these cold numbers make us feel clearly that the “red line” of 2015 is getting closer and closer. So, what preparations should we make?
First, revisit the capacity expansion. The management department must assess the situation and strengthen the risk expectation. At least, the automobile enterprises should generally establish an elastic production mechanism to prepare for the large-scale emptying of production capacity.
Second, self-owned brands should actively explore the international market and find the way for excess capacity like Japanese and Korean car companies. Joint venture brands should fully consider the future role of the Chinese market and increase the proportion of exports through intensive production.
Third, enhance R&D and innovation capabilities, accelerate the upgrading of core technologies and components, and prepare for full competition.
Fourth, change the current single profit model, actively explore the entire industry chain, and benefit from various fields such as R&D, design, procurement, services, logistics, and finance, and increase the level of cash flow to cope with the overall deterioration of the market.
