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China's automakers face serious consolidation

Stiff competition from foreign and state-owned firms poses a threat to the nation's smaller car brands.

According to Vice Chairman and Secretary General of the China Association of Automobile Manufacturers (CAAM), Dong Yang, “Compared with global brands, domestic Chinese brands are particularly weak in R&D and brand image”, also stating that more than half of the nation's carmakers will be weeded out by as early as 2015.

With more Chinese cities restricting vehicle sales and global auto giants like BMW, VW and Ford all stepping up production in China, the competitive heat will force many lesser-known Chinese brands out of the market.

While passenger car sales in the first half of 2012 rose a healthy 7.1% year-on-year to 7.6 million units, fuelled in part by blistering growth in the import-heavy luxury sector, sales of domestic brands dropped 0.2% to 3.2 million units. Domestic brands have seen their market share fall a grim 3 percentage points to 41.4% in the same period, according to the CAAM.

Even some of the nation's largest domestic brands are taking a hit. Dongfeng Automobile Co recently announced that profits in the first six months of 2012 were expected to fall between 60-70% in the wake of slow truck sales. According to Xinhua News, fellow truckmaker Beiqi Foton Motor Co also suffered a 31% drop in commercial truck sales in the same period.

The climate is becoming increasingly harsh for smaller carmakers, who do not receive the same level of government financing and preferential treatment as their state-owned competitors. Furthermore, even as domestic sales shrink, China's auto giants continue to profit from their joint ventures with foreign carmakers, who are required to have a local partner by law if they wish to trade in China.

Indeed, despite mediocre sales and its time and cost-intensive acquisition of Volvo Car Corp, Zhejiang Geely Holding Group has now been promoted to 475th place on the Fortune 500 list, with revenues of $23.4 billion in 2011.

Tags: automotive industry, China, Corporate News, Ford, OEM and automotive, Volkswagen

Published 21st July, 2012

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