2010-07-22 16:21

Capacity expansion

Even as car demand may stall, automakers including GM, Volkswagen AG, Honda Motor Co and Nissan Motor Co are rushing to boost capacity and introduce new models as they compete for bigger market share.

Nissan, the largest Japanese carmaker in China by sales, aims to expand production capacity in the nation 68 percent to 900,000 vehicles a year by 2012 and plans further increases after that, CEO Carlos Ghosn said in April.

The slowdown in sales growth since April "doesn't affect our plan," said Sharon Shen, Nissan's Beijing-based spokeswoman.

Shares in Dongfeng Motor Group Co, Nissan's partner in China, have declined 10 percent this year and traded 0.6 percent lower at HK$10.02 in Hong Kong as of 2:53 pm today. SAIC Motor Corp, China's largest homegrown carmaker and a partner of GM and Volkswagen, has fallen 26 percent in 2010.

SAIC and GM's minivehicle-making venture SAIC-GM-Wuling Automotive Co said last month it plans to boost capacity by 47 percent to 1.31 million vehicles annually by 2012. "We will remain aggressive in our approach to China," said Deng Xiaoyan, a GM spokeswoman in Shanghai.

Output exceeds sales

Domestic auto output exceeded sales by 1.29 million vehicles in the first half of this year, the China Automotive Technology & Research Center said on July 5. The average stockpile period, a measure of the time between car production and registration, was 55 days in June, compared with 41 days in February, the center said.

"Automakers should reduce supply rather than getting into a price war," said Zhao Hang, president of the center.

The slowdown in demand growth has left some automakers, including BYD Co and Anhui Jianghuai Automobile Co, lagging behind their full-year sales targets.

Warren Buffett-backed BYD, which aims to double annual sales to 800,000 vehicles, met 36 percent of its goal in the first six months. Anhui Jianghuai, based in the city of Hefei, achieved 31 percent of its full-year target of 300,000 passenger cars.

BYD's share price has declined 24 percent in Hong Kong trading this year, and the carmaker said July 14 it may delay a planned share sale in Shenzhen to seek "better pricing."

Premiums to discounts

While carmakers' discounts may vary based on their profit margins, price cuts of as much as 5 percent on average are likely, IHS's Zhang said. Imported vehicles carry higher price tags and may be subject to steeper cuts, he said.

"Automakers and dealers in China aren't enjoying the good life like last year," said Guo Yong, a manager at Beijing Asia Games Village Automobile Exchange, a market that includes 130 vehicle dealers. Sales outlets are offering 7 percent to 8 percent discounts on vehicles with sticker prices between 110,000 yuan and 120,000 yuan, he said.

By contrast, some customers in Beijing paid a 20,000 yuan premium to skip ahead of a waiting list for Toyota Motor Corp's RAV4 sport-utility vehicles in February, according to Wu Bin, a salesman with Beijing Guangshun Toyota Sales Co.

The dealership had to stop charging the premium and cut the vehicle's price in March when sales declined amid global recalls of Toyota models, and is now offering a 5,000 yuan discount, according to Wu.

"With the discounts, sales have started to recover," Wu said.