What a difference a year makes, at least if your name is Geely, the company that was China’s pride last year when it purchased struggling Swedish automaker Volvo. The blogosphere has been buzzing the last 2 days after Chinese magazine Securities Weekly reported the company, whose Hong Kong-listed unit Geely Automobile (HKEx: 175) shares are down by half this year, is struggling under a mountain of debt now totaling 71 billion yuan, equal to about 73 percent of its assets. (Chinese article) The report prompted Geely to say it is capable of paying back the debt, and blasted the magazine for harming its image. Geely said earlier this year that Volvo’s sales in the first half of the year rose 20 percent and that it reported a $190 million operating profit. (previous post) But Volvo is in all likelihood still losing lots of money on a net basis, meaning it can’t really help to pay down the big debts that Geely is now carrying. Furthermore, Geely’s own profitable operations in its home China market are also starting to show signs of trouble, as the broader domestic auto market slows following nearly 2 years of blockbuster growth fueled by economic incentives from Beijing to boost consumption during the global economic crisis. As the industry slows, domestic names like Geely, Chery and BYD (HKEx: 1211; Shenzhen: 002594) are taking the biggest hit, as all have far fewer resources to weather such a downturn compared with rivals that operate joint ventures with big international names like Ford (NYSE: F), Volkswagen (Frankfurt: VOWG) and General Motors (NYSE: GM). Geely reported last week its October sales fell 10 percent from a year earlier, even as the broader market grew slightly (English article), and I suspect we’ll see more declines in the months ahead. All this could further strain Geely’s ability to repay its debt, which could force the company into a painful restructuring if things at Volvo and its domestic operations don’t improve quickly.Bottom line: Geely could be headed for a painful restructuring, as it suffers from falling sales and a mountain of debt from its landmark Volvo purchase last year.
Related postings 相关文章:
◙ Foreign Spending Spree Augers Woes for China Car Makers 外国车企大举投资中国 本土车企倍感压力
◙ Geely-Volvo: Good First Year, But Fork in the Road Ahead
◙ Potent Partners Lift SAIC in Wobbly Times 动荡时期 合作夥伴撑起上汽的业绩
After about a year of pilot tests with government-backed bus and taxi fleets, struggling car maker BYD (HKEx: 1211; Shenzhen: 002594) is finally launching its electric vehicles (EV) for the consumer market, in a pivotal move as it tries to reverse its rapid decline. The company, backed by billionaire investor Warren Buffett, has certainly prepared well for this launch, using the past year to address many of the problems its EVs are likely to face by testing them out in programs backed by the government in its hometown of Shenzhen, which has been highly supportive of the drive. BYD says it will start selling the cars in Shenzhen first, which also looks like a good move as the local government will continue to provide support in the forms of subsidies towards the purchase price and, in a more unusual move, will help buyers install charging stations in their homes. (
China’s automobile association has lowered its sales outlook for 2011, dealing a further blow to the industry and especially to China’s embattled domestic car makers that specialize in the kinds of cheaper, more fuel-efficient models that look set to take the biggest hit as the market cools. The auto association’s latest numbers show that passenger vehicle sales rose an unexpectedly strong 8.79 percent in September, as buyers rushed to take advantage of government incentives that expired at the end of the month for smaller, more fuel efficient cars. (
The rapid slowdown in China’s auto sales has spread to the higher-end of the market, boding poorly for foreign names like Volkswagen’s (Frankfurt: VOWG) Audi brand and BMW (Frankfurt: BMW), which have invested heavily in the market on a bet that pricier cars were less vulnerable to industry downturns than more mainstream models. After two turbo-charged years of growth that saw Chinese car sales jump on strong buying incentives from Beijing, growth in the market has suddenly disappeared as incentives ended and the central government takes other tightening steps to cool the overheated economy. Makers of high-end products, such as luxury bags, homes and cars, love to say how their products are more immune to economic downturns than mainstream goods, even though the reality is that the suffering is usually just slightly delayed for these higher-end products. But even luxury cars appear to already be suffering in the current car slowdown, with foreign media reporting that sellers of premium brands are now offering discounts of 16-20 percent to maintain sales. Those discounts look similar to ones being offered by more mainstream brands such as VW and SAIC (Shanghai: 600104), as companies lower prices to try and offset cooling demand. I previously said that Chinese car makers with major foreign partners are best positioned to survive the current downturn, which is bad news for names like Chery and BYD (HKEx: 1211; Shenzhen: 002594), which lack such partners that have the resources to weather such slowdowns. Chery has received a setback on that front, with Japanese media reporting the company’s plan to produce Subaru-branded vehicles in a new joint venture with Fuji Heavy Industries (Tokyo: 7270) has been rejected by China’s state planner because the company’s major shareholder, Toyota (Tokyo: 7203), already has 2 joint ventures in China, the maximum allowed under Chinese law. (
Despite facing a sharp slowdown in the domestic auto market, foreign car makers are showing no signs of slowing down their investment in China — a trend that looks worrisome for big domestic names that are no doubt being forced to curb spending. In the latest development on that front, Chinese media are reporting that Germany’s Volkswagen (Frankfurt: VOWG), China’s largest auto brand with 13 percent of the market, has decided to boost its already sizable investment plan for China, now aiming to spend $19 billion from 2012 to 2016 from a previous target of $14.3 billion from 2011 to 2015. (
There’s been a flurry of news on the electric vehicle (EV) front these last 2 days, as China enlists US heavyweights General Motors (NYSE: GM) and General Electric (NYSE: GE) to try and jumpstart the country’s sputtering drive to environmentally friendly cars. But despite the hype, the two latest initiatives look largely symbolic to me, and it’s hard to tell if either will have much impact. One deal will see GM and Chinese partner SAIC (Shanghai: 600104) step up their EV development, with GM making vague promises to transfer more of its cutting-edge EV technology to China as it prepares to import its state-of-the-art Chevy Volt on a trial basis. (
The central government was sending mixed signals about its future plans for electric vehicles (EVs) at an auto event over the weekend, on the one hand tightening current incentives for EV sales but at the same time saying it is studying more measures to boost the struggling program. What this tells me is that China’s ambitious program to put 1 million EVs on the road by 2015 is in a state of disarray, with few such vehicles on the road today despite lots of government talk. Let’s review the latest developments, which saw one Finance Ministry official at the event in Tianjin saying fuel efficiency standards were being raised for EVs to qualify for a government subsidy of 3,000 yuan per vehicle, meaning less cars will now qualify in the program. (
Leading Chinese car maker SAIC Motor (Shanghai: 600104) has just posted its latest results that look quite impressive, underscoring that having strong foreign partners is critical in the highly competitive auto industry as it heads into a major slowdown. SAIC said its profit in the first six months of the year cruised ahead at a rapid 46 percent clip to 8.58 billion yuan, or about $1.3 billion — not bad for a market where growth has slowed dramatically this year and is only expected to reach 5-10 percent following the end of government incentives to boost sales during the global financial crisis. (
It’s Monday morning, which means there’s not too much news in the market yet and instead it’s a good time for one of my period looks at the broader auto industry. A wide array of new data is out on July sales, which show the continuing decline of China’s top 3 independent auto brands, BYD (HKEx: 1211), Chery and Geely (HKEx: 165). BYD’s top-selling model, the F3, continued its plunge in July, with sales down 41 percent from a year earlier. Sales for Chery’s top model, the QQ, grew just 0.9 percent, lagging the broader market and causing it to lose share. Geely doesn’t have a model in the top 20, but its overall sales fell 6.3 percent in July, a month when overall passenger vehicle sales rose 12 percent. The stumbling of these top 3 domestic brands bears a striking resemblance to a similar trend from six or seven years ago, when domestic cellphone makers like TCL (HKEx: 2618) and Ningbo Bird suddenly emerged to challenge the then-dominant positions of market leaders Nokia, Motorola and Samsung. But in that instance the domestic firms soon fell almost as quickly as they rose, never to return in most cases. The reason was relatively simple: they all soared to prominence on the strength of one or two popular models that captured the public’s interest. But then they failed to follow with more popular models in an industry where product life-cycles typically run around 2-3 years, causing them to quickly fade. The same now appears to be happening with these domestic car makers. Both BYD and Chery found quick success with the F3 and QQ, respectively, but are now struggling to develop popular new models as these successful ones near the end of their life cycles. If they fail to find other new hits soon, they could easily find themselves following in the footsteps of faded names like Ningbo Bird and TCL.
