China Adds Capacity For 21m Cars. Volkswagen Gets Cold Feet
On the back of a 45 percent growth that propelled Chinese car sales to 13.6m in 2009, and faced with a shortage of cars that doesn’t allow them to feed China’s ravenous appetite for even more cars, Chinese automakers are racing to build more plants. The combined capacity of the 10 largest players is expected to balloon from around 12 million units in 2009 to a breathtaking 21 million in 2012, today’s Nikkei [sub] reports.
Some examples:
SAIC, which has joint ventures with GM and VW, plans to raise its capacity by 30 percent come 2012. SAIC Group has set 2010 sales target at 3 million units, up from 2.72 million units last year, Hu Maoyuan, the company’s chairman, said Saturday to state news agency Xinhua
FAW, China’s second-largest maker after SAIC, has plans to nearly double its output capacity by 2012. FAW has big expansion plans with its joint venture partners Volkswagen and Toyota. FAW Group has set its sales target for 2010 at more than 2.3 million units, an increase of 18.3 percent from a year earlier, Xinhua says in the same report.
Chang’an plans to build a new plant to be jointly operated with Ford.
Even with the auto boom, capacity utilization at major Chinese auto makers was 80 percent in 2009, J.D. Powers reckons. For 2012, J.D. Powers projects 70 percent of utilization. The Chinese government has already warned that the industry could eventually face excess capacity.
India may be heading into similar problems.
In the meantime, formerly swashbuckling Volkswagen has grown cautious. The company had profited heavily from growth in emerging markets, especially China. They just cut back their global sales projections by 67 million vehicles for the period through 2018, Germany’s Automobilwoche [sub] reports, citing an internal paper by VW sales chief Detlef Wittig to the board. Wittig prepared his bosses to basically strike a whole year of production from their plans. Obviously, “this effect would lead to lower group deliveries to customers versus the previous plan, and as a result to a lower financial result,” the letter says.
His boss Martin Winterkorn sticks to his plan to unseat Toyota as the world’s largest auto maker by 2018. They probably bet on Toyota running into a similar soft patch.
More or less? Workers at Volkswagen plant in China. Picture courtesy the thedetroitbureau.com
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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Maybe "cold feet" isn't quite the best term here -- having read the Automotive News version of the story (sorry, no subscription or sufficient German skills to read the original) it sounds like Winterkorn is warning the VW managers that the global recovery may not be as strong as anticipated. VW is cutting their total global automotive market size estimate by 67M cars for the nine years 2010-2018, but there was nothing there to say specifically whether VW is adjusting its own volume targets or financial forecasts. On the other side, Marchionne is counting on a strong recovery for Chrysler's (and maybe Fiat's, too) survival.
And each one of those 21 million cars will need several barrels of fuel per year to run. Americans, Europeans nor Australians are more entitled to drive than newly automotive Chinese citizens. This isn't about 'us and them', or 'burning OUR oil'. I just hope they have contingency plans in place for when oil becomes much more expensive, leaving those new car owners in China high and dry, and demanding the government 'do something'.