Chinese carmakers are involved in a slow-motion wreck. Falling sales hit Geely Automobile Holdings and Great Wall Motor harder in the first half than rivals partnered with foreign marques. Both companies have stated that they are seeking joint ventures (JVs), too. A better route to recovery would be industry consolidation, and soon.
Domestic manufacturers are getting crunched from every direction. The withdrawal of government incentives last year caused customers to accelerate their purchases.
Geely, whose parent company owns Volvo, blamed new emissions standards for its aggressive price cuts, and by extension a 40 percent fall in profit through the end of June. At $9 billion, SUV-maker Great Wall shrank 60 percent for similar reasons. Beijing is now also slashing subsidies for electric vehicles, putting even more pressure on margins.
Some sympathy might be expected from the central government, which considers auto to be a "pillar" industry. Yet Beijing is also aware that the country has far too many car companies, and that too many of them rely too heavily on shared revenue from overseas JVs, which have crippled their export competitiveness.
Sales of BMW models, for example, made up 90 percent of revenue at $5 billion Brilliance China Automotive, whose profit fell just 9 percent in the first half. Guangzhou-based GAC relies on its relationship with Toyota to compensate for slackening demand for its Trumpchi sedan.
Local manufacturers are losing market share at home. It was down to 36 percent in July, after they ceded 3.9 percentage points from a year earlier. Even Geely and Great Wall, which had both found some market traction for their own models, have started flirting with overseas rivals. The better ones, however, are mostly taken.
Domestic mergers make more sense. Geely and Great Wall are up against state-backed giants such as FAW, along with dozens of smaller rivals and hundreds of EV startups. The long-expected combination of FAW with Dongfeng and Changan, for example, has yet to happen. It's time to start revving up these sorts of deals.
The author is Pete Sweeney, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews. bizopinion@globaltimes.com.cn
