Overcapacity casts shadow on world's largest auto market

As part of its expansion plan, Changan Ford will open a plant this year in Hangzhou with an annual capacity of 250,000 vehicles, bringing its total capacity to 1.2 million units.

Beijing Hyundai will be able to produce 1.6 million vehicles a year when another new plant starts operation in 2016. The joint venture set its sales goal at 1.16 million units in 2015.

But some industry insiders said it will be hard for Hyundai to fully utilize the capacity. According to auto analyst Feng Shiming, the Beijing-based automaker wins customers by making cars with good value for money, "but the strategy will not work so well as the overall auto market slows its pace".

FAW-Toyota is expected to have an annual capacity of 1 million units in 2015, according to Chinese reports. And GAC-Honda will be able to produce 600,000 vehicles a year when its third plant is finished this year.

Chinese brands are expanding their production capacity as well. Great Wall is expected to have the capacity to make 1.5 million units in 2015, double the figure in 2012. Changan's designed capacity will hit 860,000 in the year.

Boom or doom

Despite a common enthusiasm for expansion, that might mean different things for different automakers.

Using their technological advantages and brand appeal, many joint ventures are further expanding their market share by introducing more models made at new plants, the National Business Daily reported.

The report said Changan Ford, Beijing Hyundai and Shanghai GM have unveiled SUVs in a segment rapidly gaining in favor among Chinese consumers.

But things are not so good for domestic brands. James Chao at IHS Automotive said that their average capacity utilization stands at 65 percent compared to 85 percent at joint ventures.

A survey by the China Galaxy Securities of 19 Chinese brands showed that 15 have an average utilization rate of 50 percent. The figure was as low as 10 percent in some domestic automakers.

Ye Shengji, a senior official at CAAM, said Chinese automakers should be cautious of expansion due to their lackluster market performance.

As the growth of the whole auto market slows, it will be even more difficult to boost their sales performance, said Jia Xinguang, a Beijing-based analyst. "The age of wildfire-like growth is gone," he said.