The latest auto news bits show that domestic nameplate Geely (HKEx: 175) continues to struggle with its plans to resuscitate its Volvo brand, while General Motors (NYSE: GM) is banking on rapid growth for low-end cars to consolidate its position as China’s market leader. Meantime, I’d be remiss not to mention the latest news coming from sputtering domestic automaker Chery, which has disclosed its controversial plan for a joint venture with luxury car maker Jaguar Land Rover has just been approved by the key state regulator.
Tag Archives: General Motors
Chery, Great Wall Hit Export Speed Bump 奇瑞和长城汽车遭遇出口障碍
Domestic car makers Chery and Great Wall Motor (HKEx: 2333) have hit a first major speed bump in their recent export drive, spotlighting the uphill road China’s big domestic brands will face as they look overseas to offset sputtering sales at home. Media are reporting that both companies have launched recalls for most of their cars sold in Australia after asbestos, a well-known carcinogen, was found in the engines and exhaust systems of some vehicles. (English article)
China Throws More Money at Sputtering EVs 对购买新能源汽车进行补贴是徒劳的
Despite the growing sounds of failure for its ambitious drive to develop alternate energy vehicles, Beijing is preparing to throw still more money at this foundering sector, resorting to its same tired old approach for that never seems to work for developing new industries. More than a year after announcing an initial package of wide-ranging incentives to boost electric and hybrid vehicle sales, Beijing is preparing to launch yet another round of new incentives aimed at getting more consumers to buy these cars, according to Chinese media reports. (English article)
Cars: Nissan Drives, Saab Gets Reprieve 汽车：尼桑设新厂，萨博暂时获救
I’ll wrap up this week with a couple of items from the car world, one of which has Japan’s Nissan (Tokyo: 7201) adding fuel to China’s looming auto glut while the other has yet another Chinese buyer helping forestall the long and tortured death of Sweden’s bankrupt Saab. My personal favorite among these 2 stories is Saab, as it’s quite a colorful saga; but Nissan is clearly the bigger of the items, so I’ll start with a look at the news that the Japanese automaker is planning to build a $785 million new plant in the northeastern port city of Dalian. (English article) The new plant is part of a broader plan to invest 30 billion yuan in China by 2015 previously announced by Nissan, China’s second biggest car brand and the most aggressive of Japan’s 3 major automakers in China. The new plant, being built together with Nissan’s China partner Dongfeng Motor (HKEx: 489), will initially have capacity to build 25,000 cars per year when it opens in 2015, but will expand rapidly to a a hefty 240,000 vehicles by 2017, according to a foreign media report, citing an unnamed source. This kind of rapid expansion, despite a recent cool-down in China’s auto market, is being seen throughout China’s auto industry, with most of the big foreign automakers including Ford (NYSE: F), BMW (Frankfurt: BMWG) and General Motors (NYSE: GM), all announcing major new initiatives over the last couple of years. I have no doubt that market growth will eventually accelerate again, and recent signs from Beijing indicate that could happen soon as it considers new incentives to boost sales. But the addition of new capacity for another 1 million or more vehicles looks a bit big to me for a market unlikely to sell more than 10 million vehicles this year; that means we could see lots of idle capacity in the next few years, forcing some weaker players, especially the domestic brands, to leave the market. Meantime, Saab, which is now in bankruptcy and hasn’t produced any cars since last year, is being sold to a Sino-Japanese partnership that plans to turn the brand into an electric car specialist. (English article) I’ve never heard of either the Chinese company, a Hong Kong-based firm called National Modern Energy Holdings, or the Japanese partner, Sun Investment. But I expect this pair are looking to buy the Saab name and perhaps some of its technology if the deal actually gets completed, and then they would probably shut down Saab’s money-losing Swedish operations completely. A more likely scenario would see this latest agreement collapse, just like an earlier rescue package that saw 2 other Chinese firms try and fail to buy the company. (previous post) Regardless of the final outcome, it does seem like the Saab brand may be destined to live on in China — an ironic development since the name is virtually unknown in the market.
Bottom line: Nissan’s latest plan for a massive new plant in northeast China marks the latest sign of a supply glut building for China’s auto sector.
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◙ Dwindling Demand Fuels Car Inventory Build-Up 中国汽车库存增加或引发价格战
Dwindling Demand Fuels Car Inventory Build-Up 中国汽车库存增加或引发价格战
It’s the beginning of June, and that means it’s time for the nation’s automakers to release their monthly sales data that will undoubtedly show modest to moderate growth, with the possible exception of some domestic automakers that are suffering in the industry’s current slowdown. But the real picture could be far worse than those reports indicate, based on the latest cautionary words from the nation’s biggest association of auto dealers. Those words of caution from the China Automobile Dealers Association come less than a month after the group warned that inventories of unsold cars were rising above what is normally considered healthy levels at dealerships selling 3 of the nation’s top brands, Geely (HKEx: 175), Chery and BYD (HKEx: 1211; Shenzhen: 002594), as well as at Honda (Tokyo: 7267) dealerships. (previous post) That warning reflected the reality that auto manufacturers, whose monthly figures usually reflect shipments to dealers and not actual sales, were sending many more cars to their dealerships than the dealers were actually selling. The slowdown has gripped the entire market for much of the last 12 months, as car sales dropped off considerably after turbocharged growth in 2009 and 2010 fueled by incentives from Beijing. Now the same Auto Dealers Association is saying that inventory levels are rising at an alarming level, with the average level now at 60 days at the end of May compared with 45 days just a month earlier. (English article) An association executive said the rapid rise in unsold cars is unsustainable, and that dealers are being forced to sell vehicles at big discounts to prevent inventory levels from getting even higher. Most observers are expecting to see modest gains tomorrow when the association that tracks China automobile sales releases its monthly figures for May, which reflect shipments to dealerships. Some individual manufacturers have already reported their own May figures, including GM (NYSE: GM), which reported its May sales rose 21 percent on strength from 2 of its lower-end brands. While GM’s numbers may be relatively reliable, the same may not be true for some of China’s domestic players like Geely, BYD and Chery, which have continued to churn out new cars and ship them to dealers who then discover there is little or no demand for the product. Analysts are already predicting the inventory build-up will force those dealers to offer steep discounts, leading to price wars that could ultimately infect not only the domestic automakers but also the big global players like GM and Volkswagen (Frankfurt: VOWG) as well. Dealers are also likely to feel the pinch, with many potentially being forced out of business as they are forced to sell their inventory at a loss. On the whole, it looks automakers and their dealers could be facing a bloody summer ahead, with many of the domestic players being forced to idle large amounts of production capacity by the fall.
Bottom line: An unsustainable inventory build up at Chinese auto dealers will lead to bloody price wars in the summer, followed by sharp reductions in output for many domestic players in the fall.
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◙ Auto Inventory Builds, Pain Ahead for Domestics 中国低端车库存增加 本土车企面临苦日子
Auto Inventory Builds, Pain Ahead for Domestics 中国低端车库存增加 本土车企面临苦日子
The latest signs of trouble for China’s sputtering car industry are coming from some lower-end auto dealers, who are reporting a rapid build-up in their inventories even as manufacturers keep adding new capacity planned when the sector was booming 2 years ago. The current cycle looks like a classic case of looming oversupply, caused by a sharp jump in demand around 2009 that led manufacturers to invest billions of dollars in new production facilities that are only now coming on stream. Unfortunately for the automakers, the demand that helped to push China past the US to become the world’s biggest auto market has now started to stumble as Beijing takes steps to cool the nation’s overheated economy. The latest warning sign is coming from China’s largest car dealer group, the China Automobile Dealers Association, which is saying that dealers for 3 or China’s top domestic auto brands, Geely (HKEx: 175), Chery and BYD (HKEx: 1211), now have more than 45 days worth of inventory in their showrooms. (English article) In addition, Honda’s (Tokyo: 7267) China dealerships are reporting similar inventory levels, prompting the Japanese automaker to take the unusual step of closing its China joint venture for 15 days during the recent May Day holiday. The 45-day inventory mark is important because that’s the point at which dealers start to worry that they are not selling cars quickly enough, and thus may start to offer vehicles at big discounts in order to reduce their levels. That could potentially spark a round of price wars with other dealers, who will risk seeing their own inventories rise to dangerous levels unless they start selling their cars for big discounts as well. I’ve previously said that the big domestic auto brands are likely to suffer first in the current slowdown, as they don’t have the resources or variety of new models to compete with better-funded joint ventures backed by global heavyweights like Volkswagen (Frankfurt: VOWG) and General Motors (NYSE: GM). The domestic brands also traditionally sell to the very low end of the market, and thus don’t really compete with the big global names that tend to focus on the higher end. But recent moves into the lower end of the market by names like GM and Volkswagen could make the pain even worse for the domestic brands, and indeed Geely, BYD and Chery all reported sales declines in the first 3 months of the year. Right now the higher end of the market seems to be more stable than the lower end, meaning the big foreign car makers won’t feel the same pain as the domestics for perhaps another year. But look for most of China’s big domestic brands to slip into the red in the next 12 months, and perhaps for even 1 or 2 to close or combine with rivals as the industry embarks on a needed consolidation.
Bottom line: Inventory build-ups at car dealerships for BYD, Chery and Geely indicate a price war may soon break out at the lower end of China’s car market, pushing many companies into the red.
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◙ Car Sales: Domestics Down, But Not Out 汽车销量：国产车下降，接近拐点
◙ Jaguar-Chery: Veto Ahead 奇瑞联手捷豹路虎建合资厂料难获批
◙ China Slams the Brakes on Automakers 中国为汽车行业踩刹车
Luxury Cars Headed for Overheating 豪华车市场步入过热
China’s luxury car sector is showing all the signs of overheating, as both domestic and foreign auto makers spend hundreds of millions of dollars to invest in a vast consumer market whose fast growth makes it increasingly vulnerable to bubbles in many areas. As the annual Beijing Auto Show begins this week, news has emerged that Nissan (Tokyo: 7201) plans to start production of its Infiniti cars in China, seeking to tap strong demand for luxury brands in the world’s largest auto market. (English article) Nissan’s plan comes just a week after US auto giant General Motors (NYSE: GM) announced a similar plan to produce its own luxury Cadillac brand in China. (previous post) Even domestic names are getting in on the act, with brands like Geely (HKEx: 175) and Chery making recent moves that indicate they want to enter the space. It’s easy to see why all the luxury brands are piling into China, where a growing number of affluent consumers are happy to pay big bucks to show off their newly wealthy status. After two years of breakneck growth fueled by government incentives, China’s broader auto market grew by an anemic 2.5 percent last year as the nation’s economy slowed due to global weakness and cooling measures by Beijing. Despite that slowdown, luxury car sales continued to boom, notching solid double-digit gains for the year. That growth has continued into the first quarter of 2012, even as the broader market contracted 3.4 percent in the same period. First-quarter sales for industry leader Audi (Frankfurt: VOWG) jumped 40 percent, while rival BMW (Frankfurt: BMW), the market’s second largest player, also notched healthy growth of 28 percent. While Cadillac and Inifiniti prepare to start local production, the existing luxury players are also all investing big money on their own expansions. Audi currently plans to more than double its annual capacity to 700,000 units per year from the current 300,000, and BMW is embarking on a similar plan that will see it spend 1 billion euros. Adding to the looming glut is Beijing, which has shown a previous inclination to protect domestic industries and to intervene in markets that appear to be overheating. Beijing showed its intentions for the luxury car space earlier this year when it published a preliminary list of approved models for purchasing by government departments – a big buyer of such vehicles for status-conscious officials. (previous post) In what came as a surprise to many, the list excluded all foreign brands, a huge exclusion for government agencies that now purchase $13 billion in cars a year. That provision was designed to help domestic automakers, but also provided a clear signal that Beijing wants to clamp down on luxury vehicle purchasing by government agencies as it seeks to address public perceptions of corruption and wasteful government spending. There’s every indication that demand won’t be able to keep up with the current breakneck expansion of capacity for the luxury car market, both due to natural limitations as well as this kind of government intervention. When that happens, the big automakers will quickly find they’ve spent hundreds of millions of dollars to build massive new capacity that could end up sitting idle for years until demand finally catches up with the current big wave of new investment.
Bottom line: China’s luxury car market is in the process of overheating, which will leave automakers with large amounts of excess capacity when the market slows over the next 2 years.
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◙ GM Discovers China Luxury Market — Finally 通用汽车在华投产凯迪拉克 亡羊补牢犹未为晚
GM Discovers China Luxury Market — Finally 通用汽车在华投产凯迪拉克 亡羊补牢犹未为晚
As China’s mainstream car market shows increasing signs of little or no growth this year, General Motors (NYSE: GM), one of the industry’s top players, is finally noticing the luxury segment still has plenty of growth potential by making a very late move into the space with its upscale Cadillac brand. Now the big question will be whether luxury sales are still so strong in the year or 2 it will take GM to start making Cadillacs in China, especially as Beijing takes moves to restrict luxury car buying by government organizations. (previous post) The luxury segment’s big potential has been quite obvious for a while now, as brands like BMW (Frankfurt: BMW) and Volkswagen’s (Frankfurt: VOWG) Audi have seen strong double-digit sales gains of 30 percent or more for the last year, even as the broader market contracted 3.4 percent in the first quarter of this year. That reality is what’s driving GM to finally make a serious initiative for Cadillac, with plans to start manufacturing 3 models in China within a year, according to a foreign media report, adding GM will announce more details at the Beijing Auto Show next month. (English article) GM has sold Cadillacs in China for a while now, but all have been imported, meaning they carry large import taxes and thus are far less competitive than models from the German brands that have all invested heavily in China factories. GM’s latest move looks like a smart one, even though it’s a bit late, since Cadillac already enjoys a relatively strong reputation as a solid luxury brand among average Chinese consumers. That’s an important factor, since the Cadillac brand in GM’s home US market has always been handicapped by its image as a brand for older people. As an American living in China, I have been surprised how GM has built Buick — also considered an older, stodgier brand in the US — into its top selling nameplate in China, where the brand enjoys a very mainstream, quality reputation. There’s no reason GM can’t take advantage of its extensive sales and distribution networks and marketing muscle to do the same for Cadillac, quickly building it into a competitive major luxury brand for the China market. Of course the big risk is that the luxury market will also slow down by the time GM starts mass producing Cadillacs in China, though there should still be plenty of room for growth. Meantime, foreign media are reporting that France’s Renault (Paris: RENA) is also finally discovering China, with plans to form a joint venture with domestic car maker Dongfeng (HKEx: 489). (English article) Apparently the 2 sides are racing to finalize their deal before a deadline that will make such new investments more difficult. I suppose I should commend Renault for finally discovering China and rushing to invest there before the looming deadline. Still, I have to wonder why such a large global brand has taken so long to discover China, which passed the US a couple of years ago to become the world’s largest auto market, and would say the brand’s late arrival will severely limit its chances for success.
Bottom line: GM’s plan to produce Cadillacs in China looks like a smart move to tap the booming luxury car market, drawing on its existing networks to quickly catch up to established German rivals.
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◙ China Puts the Brakes on Luxury Cars 中国公务车拟告别豪华车
◙ Luxury Cars Zoom, But Who Profits?
◙ Cars: US, Germany Clobber Japan, Domestic Rivals 美德汽车在华完胜日本和中国车商
Ford, Volvo Step on the China Accelerator 福特与沃尔沃拟在中国大幅扩张
China’s auto market is showing all the signs of a rapid slowdown after a massive boom that saw it overtake the US as the world’s largest auto market in 2010, but don’t tell that to Ford (NYSE: F) or Volvo, which are happily discussing their latest expansion plans with local and international media. In a way, I have to admire both of these companies and many of their foreign rivals for focusing on the longer-term future rather than the next 1-2 years, which are likely to see China’s auto market post low- to middle-range single digit percentage growth as Beijing slams the brakes on the nation’s overheated economy to try to steer it to a soft landing. But at the same time, Volvo’s plan in particular looks fraught with risk, as it aims to build up a massive new manufacturing base and roll out a new brand with its Chinese parent, Zhejiang Geely, despite little or no name recognition among most Chinese consumers. Let’s take a look at the Volvo news first, which has executives at the Swedish firm finally mimicking its Geely parent by saying it wants to become a Chinese luxury brand and plans to spend $11 billion over the next few years to reach that goal. (English article) Geely founder Li Shufu had always promoted this vision for Volvo since his company purchased the money-losing Swedish brand 2 years ago, but Swedish executives at the company had resisted that vision, preferring to maintain the more mainstream image that Volvo had in the rest of the world. In this latest report, a Volvo executive is also saying the Swedish company will shoulder most or all new investment for its drive into China’s luxury car market. Those remarks are interesting because they seem to indicate that Geely, itself burdened by huge debt from the original Volvo purchase, is trying to add some distance from the massive Volvo expansion plan by making the Swedish company assume all the new debt that such an expansion will require. I don’t want to be too cynical, but such a move seems to imply that if the Volvo plan ultimately fails, responsibility for all its debt will be assumed by Volvo itself, meaning Geely could simply close the unit or let it file for bankruptcy reorganization if its ambitious plan doesn’t succeed — a very distinct possibility. Moving on to Ford, foreign media are reporting the company will spend $600 million to expand capacity at one of its passenger car factories by 60 percent, as it aims to grab more share in the China market from more established players. (English article) This plan seems a bit more modest than Volvo’s, and is part of more gradual approach to China by Ford, which came to the market relatively late through a joint venture with Chang’an Auto and is now attempting to catch up by taking share from both domestic nameplates and global rivals like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG), which came much earlier. At the end of the day I do like the fact that both Volvo and Ford are investing for the future, though I also think the Volvo plan may be a bit too ambitious and could easily see the company filing for bankruptcy in the next 5 years.
Bottom line: New expansions by Ford and Volvo in China auto are aimed at longer-term development, though Volvo’s plan looks overly aggressive and could end in financial collapse.
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◙ Geely Eyes Risky New Luxury Route 吉利欲走有风险的豪华车路线
Geely Joins Chery on the Export Road 吉利加入奇瑞的出口车行列
Faced with a slowing home market and stiff competition from foreign-backed rivals, China’s big domestic auto brands are increasingly looking to developing markets to revive their flagging sales, with Geely (HKEx: 175) the latest to jump on the export bandwagon. A company executive says Geely, which made headlines a couple of years ago with its purchase of Volvo, aims to overtake domestic rival Chery in the next 2 years to become China’s leading car exporter. (English article) Geely is joining Chery in the drive to overseas markets as growth in China’s domestic auto market, the world’s largest, has slowed dramatically over the last year after Beijing retired many buying incentives designed to boost domestic consumption during the global financial crisis. As the market has slowed, China’s “big 3” domestic nameplates, Geely, Chery and BYD (HKEx: 1211), all of which specialize in lower end cars, have lost steady share to other domestic rivals with big-name foreign joint venture partners. Those rivals are turning up the heat even more with a recent series of new initiatives to enter the lower end of the market, which traditionally was dominated by the domestic brands. (previous post) Under its aggressive export expansion plan, Geely will open factories this year in Belarus and Uruguay, adjacent to 2 of the world’s 5 BRICS countries, namely Russia and Brazil. Chery, which has opened one plant in Venezuela and is building another in Brazil, was China’s export leader last year with some 160,000 cars shipped abroad, and has seen strong overseas sales in the first 2 months of this year as well. From my perspective, this overseas strategy looks like a smart move as China is arguably one of the world’s most advanced countries in terms of designing and building reasonably high-quality cars costing less than $10,000 each — a combination preferred by many developing market white collar urbanites who often can’t afford the pricier models offered by big-name foreign companies like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG). GM has recently discovered the lower end of the market can be quite lucrative, developing its Chevy Sail specifically for China 2 years ago. Since its release, the Sail has become one of the nation’s best selling models, providing further headaches for the domestic nameplates. If they are smart, which appears to be the case, Chery, Geely, BYD and other export-minded domestic automakers will accelerate their overseas plans, as they should have a 2-3 year head start over the big foreign names. If they hesitate, they could easily run into the same foreign competitors in overseas markets that are already rapidly eroding their profits at home.
Bottom line: Geely’s acceleration of its export drive looks like a smart move, allowing it to leverage its expertise in low-end cars to quickly grow in other developing markets.
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◙ Nissan, VW Jump on China Brand Bandwagon 日产和大众进军中国低端车市场
Nissan, VW Jump on China Brand Bandwagon 日产和大众进军中国低端车市场
A growing number of big foreign car makers are developing new low-end brands and models just for the China market, with Nissan (Tokyo: 7201) and Volkswagen (Frankfurt: VOWG) the latest to make moves in that direction. These new initiatives come as the foreign giants look to keep their growth alive in China’s slowing auto market, posing a major new challenge to domestic nameplates like Geely (HKEx: 175) and Chery, which have been rapidly losing share to their better funded, more experienced foreign rivals. These moves also follow on the phenomenal success of General Motors’ (NYSE: GM) 2010 launch of the Chevy Sail, its first low-end model developed just for China which has posted growth rates in the 50 percent range for much of the last year and is now one of the nation’s best-selling models. Let’s look at the latest news first, starting with Nissan, which last week formally began production of its Venucia line of cars developed just for the China market in its partnership with Dongfeng Motors (HKEx: 489). (English article) Nissan first announced Venucia just over a year ago, so the brand itself isn’t exactly news. But all eyes will be watching to see how quickly sales grow for the first model, the D50, which will be priced starting at around 70,000 yuan, or about $11,000, which is roughly comparable to the Sail’s starting price of about 60,000 yuan. Meantime, German media are quoting a Volkswagen executive saying the company is planning to launch its own new brand to make low-priced, high quality cars for developing markets, starting at an even lower 5,000 euros per car, or about $6,600. (English article) The reports indicate that China, already one of VW’s top global markets, would be one of the primary markets for this new initiative, and I would expect the German car maker could launch the initiative with its main Chinese partner, SAIC (Shanghai: 600104). These new initiatives follow similar ones by Honda (Tokyo: 7267), which last year launched a new brand called Everus with Chinese partner Guangzhou Auto; and GM’s launching of its own made-in-China brand, Baojun, with its China partners also last year. All of these big foreign names are hoping to capitalize on China’s auto market, now the world’s largest, to develop these new brands that will combine good quality with low prices, and then export those models and technology to other developing markets like Brazil and Russia. I would expect to see the handful of other major global automakers who haven’t joined the trend yet, including Ford (NYSE: F) and Toyoto (Tokyo: 7203), hop on this new bandwagon soon, turning up the pressure on what looks like an important new growth area for everyone. Of course that will mean a potentially difficult road ahead for Geely, Chery and other domestic names like BYD (HKEx: 1211), that have largely dominated the lower end of China’s car market to date while the foreign names focused on the higher end. Look for that competition to get hotter as these new brands start rolling out more new models, potentially sending many of the Chinese brands into the red.
Bottom line: Nissan and Volkswagen’s new forays into the low-end car space are part of a broader move by foreign automakers, putting growing pressure on domestic nameplates.
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◙ Jaguar-Chery: Veto Ahead 奇瑞联手捷豹路虎建合资厂料难获批
