By on February 28, 2019

China might not be the kind of market everyone thought it was — one without a ceiling, boasting unlimited potential for growth. One by one, automakers find themselves having to confront economic reality.

Despite amassing a network of factories that could theoretically outproduce the rest of the world, the Asian country’s automotive sector only operates at about half its total capacity. That’s disconcerting. Even Europe, site of some serious industrial headwinds of its own, manages to operate around 70 percent capacity.

While the reasons for China’s woes are ludicrously complicated, one of the most pressing issues is that its economy is slowing much earlier than anticipated. Automakers, both foreign and domestic, almost universally believed that The People’s Republic would surpass the United States as the world’s largest automotive market — and they were right. But investments kept pouring in, factories were built, and the market started to cool prematurely. The situation only grew worse as incentives dried up and people began buying fewer cars; now, 2019 is shaping up to be a very bad year for the nation’s automotive sector. 

An article from the The New York Times outlined the country’s general plight this week, suggesting that some car buyers might never return due to a flourishing ride-hailing businesses. China’s Didi currently carries twice as many riders in China as Uber does in rest of the world, and it’s just one of several large ride-hailing firms operating within the country.

“None of the multinational automakers foresaw how disruptive that would be to demand,” said Bill Russo, a former chief executive of Chrysler’s operations in China.

Due to China’s aggressive push to encourage automotive startups focused on electrification, abandoned facilities are popping up everywhere. We previously reported that the nation’s hundreds of EV startups likely faced a survival rate of around 1 percent. But even traditional automakers with deep pockets and decades of experience are struggling.

Hyundai is currently considering cutting capacity there, according to a recent report from Reuters. After Hyundai’s China sales sank 23 percent in the fourth quarter, Chief Executive Lee Won-hee is weighing options. Internal documents suggest that the automaker is considering shipping vehicle kits from China to Philippines, South America and other countries for local assembly.

From Reuters:

A Hyundai Motor spokeswoman said that the automaker is “reviewing various optimization plans to enhance facility efficiency” and has begun voluntary retirement for employees in China.

China’s auto industry, the world’s biggest, is slowing after strong recent growth, with demand hit a weakening economy and the fallout of trade frictions with the United States. China’s car sales fell 2.8 percent in 2018, marking the first contraction since the 1990s, according to industry association data.

Due to China’s lukewarm friendship with North Korea, South Korean exports have taken a sizable hit there — especially after the United States helped bolster its missile defense network. China felt that the armaments were too close to its own borders, souring its already strained relationship with South Korea. This led to national animosity and reduced sales for companies like Hyundai, which already wasn’t doing so hot in the market.

Relations improved through 2018, but sales never rebounded.

However, Hyundai isn’t alone in its troubles. Ford was forced to fire thousands of Chinese workers through its joint ventures, Honda is rumored to be cutting capacity significantly, and even General Motors (which has performed exceptionally well in the region) finds itself facing some difficult production decisions.

The Chinese market prefers Chinese cars but, with domestic customers pulling back, exports seem the only real way for it to move forward. However, its ongoing trade war with the United States has made that possibility an issue. It’s also hurt the Chinese economy overall, further hampering at-home sales. China’s manufacturing hubs, like Guangdong, are clearly suffering due to the tariffs. But it’s difficult to pin down how bad things have gotten, as the Chinese government is believed to downplay the country’s unemployment to a high degree. The fact it’s even admitting there’s a problem should be telling.

“Many of the companies in Guangdong province have permitted leave for their employees since November — many of the export companies,” Zhang Liqun, research fellow at the Macroeconomic Department of the Development Research Center of the State Council reportedly told CNBC this week. “That has something to do with the U.S.-China trade frictions … Many of these companies think they have done what they can do before November and they are not planning to organize further production after that.”

While the trade war undoubtedly hurt China, it isn’t the only issue affecting its auto industry — an industry overextended by an entire planet betting on its seemingly unlimited potential for prosperity. Whether or not it can bounce back and continue its upward trajectory remains to be seen, but plenty of manufacturers are starting to come down from the clouds. China is still the world’s largest automotive market, just not the money-making machine everyone envisioned a few years ago.

[Image: General Motors]

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36 Comments on “Chinese Auto Market Not As Hot As Everyone Thought...”


  • avatar
    APaGttH

    Article mentions Hyundai and Ford as having the worst woes, picture of Cadillac in the story when GM.

    Bertel would approve.

  • avatar
    0Gravity

    The Chinese will always favor their domestic companies over foreign ones and it’s going to get worse as the market cools. Example from my industry: wind turbines. Almost all wind turbines installed in China over a decade ago were foreign European. Then China forced joint ventures and licensing so their companies could learn (copy) how to make them themselves. Now China installs a massive amount of wind — around 42% of all global wind capacity annually — and less than 4% is from the foreign firms.

    • 0 avatar
      thornmark

      there you go – just ask Apple

      read that GM is making sales there – not so much money

      Ford shouldn’t waste US profits on China

      I believe GM thought they could export China product to the US (at US worker expense) – not likely anymore

      and now they are faced with China buying real Chinese since they got the tech they needed

      GM looks to be in a bad situation

      • 0 avatar
        James Charles

        thornmark,
        Your comment is purely emotive.

        Why not use any lesser economy to produce lower consumer items like To shirts, TVs and cars?

        Why not focus on building to the future, instead of living in the past?

        Innovation, entrepreneurial ideas is what made America great. The US 150 years ago grabbed European ideas, optimised them and mass produced on a scale never scene before.

        Move on man, look to the future.

        • 0 avatar
          thornmark

          actually you’re emotive, I was being factual

          China demanded advanced tech for doing business in China and they got it and now are using it to displace the stupid westerners that gave it to them

          APPLE is the cautionary tale and GM is going to look really stupid for betting on a near profitless China

          you apparently can’t see the future, the future China was building on effectively stolen tech

          • 0 avatar
            James Charles

            WTF? The US is a POST industrial nation.

            Your perspective regarding US workers is passe. AI and robotics, not blue collar workers (from your perspective) is the future.

            Like the Agri industry, manufacturing (and many other industries) will require a couple percent of the workforce to produce what we produce now.

            The Chinese are in a better position to adopt the new world, as there are many like you who still view the world from the past.

            Adapt or perish in the new environment, or the world will enter the Dark Ages again.

      • 0 avatar
        APaGttH

        GM is in China because Buick is the most powerful import brand on the planet in China. It is cultural, it is deeply ingrained in their society, and the Chinese consumer is not tainted by decades of Roger and Me, malaise, plastic cladding, and we don’t give a you know what products. It is why Buick survived the BK and Pontiac didn’t. It is why GM had zero interest in selling Buick because the Chinese would buy it and GM would be pushed out of the industry. If you are newly minted into the middle or upper-middle class, “I have arrived,” is declared in a Buick.

        GM entrance into China was about Yuan, err Benjamins, errr Yuan that become Benjamins. It is really that simple. Buick is designed for China first because that is Buick’s primary market. The China first design concept goes all the way back to the Gen II LaCrosse released in 2010.

        I will continue to say in the US not using the VE and VF Commodore as a Buick and bringing over the Chinese Park Ave as a Grand National was a mistake. GM could have sold at least the same number of SSs – and the Chinese styling inside and out of the Park Ave of that era was beautiful (China didn’t get V8 version IIRC, and instead the biggest engine was a 3.6)

      • 0 avatar
        phxmotor

        …”I believe GM thought they could export Chinese product… at the expense of American workers… not likely anymore”.
        You would think TTAC “car guys” would know more about today’s international supply chain(s) than they appearantly do. The truth is: GM has been importing Chinese built components and subassemblies for “American cars” for the last 16 years. My old winter beater is a Buick LeSabre. I got it cheap because all four US made window registers had failed. All four of them. A trip to the wrecking yard for replacements. Mind you this is in an 18 year old car. Low and behold all the power window registers for LeSabres 16 years old and newer are stamped “GM China”. Hate to admit it (no I don’t) but not one has failed. Better design. Better quality. No failures. The same goes for hundreds of other subassemblies.
        People actually think China isn’t already part of “the supply chain”? Of course they are. It’s been a faint accompli for almost two decades already.

        • 0 avatar
          ToolGuy

          phxmotor,

          That would explain the metric fasteners on my 24-year-old ‘Murican truck…

          • 0 avatar
            ect

            IIRC, the US automotive industry went metric in the 1970s, when companies started designing “world cars”.

          • 0 avatar
            ToolGuy

            ect,

            My truck didn’t go metric – it went partway. So you gotta bring SAE and metric wrenches. And yeah I realize this happened awhile back.

            My sarcastic point, which I didn’t make very clearly: I have a longstanding issue with the mindset that GM and Ford are “U.S.” companies. More specifically, I have an issue with people in the management of these companies who are willing to take advantage of this mindset with their customers/employees/etc, while showing no reciprocity whatsoever. If a U.S. citizen in 2019 feels any obligation to “buy domestic”/etc. when shopping for a vehicle, realize that a) the companies aren’t domestic and haven’t been for a *long* time – they are global, multi-national, call it what you will and b) I assure you that executives of those companies spend *no* time thinking about “U.S.” concerns when they make business decisions (except perhaps to cynically perpetuate the misperception referred to above).

            This explains the blank stare that Mary Barra gives when faced with the Donald Trump 1950’s mindset of “us/them” “USA/the world” which didn’t even hold in the 1950’s in the context of the auto giants.

            When Coca-Cola steps all over the U.S. Flag Code in their July 4th packaging and marketing, I am reminded of the origins of Fanta. And similar stories exist for GM and Ford – because all three of these companies were global/multinational long before the outbreak of WWII.

            Yeah, I have issues…

          • 0 avatar
            Luke42

            My 1998 Ranger (AKA Mazda B2500) had metric body fasteners and Imperial engine fasteners.

            That’s pretty much the opposite of what I would have chosen.

            But that truck did survive my 20s, so they probably got it right after all.

      • 0 avatar
        NormSV650

        But when Honda can save 20% on a $40K suv by making it in China and not here it is ok?

        “…Honda says the new Acura SUV will be about 20 percent cheaper than the current one. That’s all fine and good for China, Chinese workers and consumers, but what about the employees in Ohio? Will the elimination of RDXs built for China hurt overall factory production and potentially lead to a loss of jobs? It’s a worthwhile question and, hopefully, US demand for the new Acura RDX remains strong enough to withstand the hit.” Carbuzz

  • avatar
    EGSE

    I miss the booth babes. Are they gone for good?

  • avatar
    James Charles

    Chinese vehicle exports are not driven by the US or for that matter most any OECD economy. Chinese vehicle exports are driven by lower income nations.

    The Chinese economy was on the nose prior to the Trade War. The Trade War has exacerbated the Chinese position.

    Chinese expansion has to cool and restructure. I believe the Communist Central Committee will go kicking and screaming if they want to realise greater economic expansion. The model they use with much control over business, imports, exports is still similar to most developing nations ….. based on protection and propping industries, particularly inefficient National industry.

    If China wants to expand it must adopt liberal economic management.

    The current Trade War with the US has affected both economies. The US is starting to feel the pinch now. Look at farm debt, slowing manufacturing due to a high USD and the silly tax on metals.

    I think the current methods used to contain China are irresponsible, as no one will win. Trump’s techniques are based on disruption and destruction.

    Time will show the Chinese will survive as they still have opportunity for huge expansion. The US is a mature economy with little room to expand. The US needs to leverage the EU, Japan, Korea and other OECD economies to change China, not as Trump is doing treating other free loving, rich nations as adversaries. Very poor judgement on his part.

    The West together can hold off the Chinese and force them to change. As we are witnessing the Great Deal Maker can’t make a deal at a Summit. Summit means peak. You start at the bottom and reach the Summit.

    • 0 avatar
      sportyaccordy

      Yea, I was going to say… the problem with “controlled” economies like China’s are that once you plug into the global economy some things are beyond your control.

      China’s recent history is littered with big initiatives that abruptly careened the country in the wrong direction. This latest push is no different. China’s leadership is accountable to nobody, and by extension hasn’t and will never learn from its mistakes.

      And the global economy has hitched its wagon to such an operation. Amazing times we live in.

      • 0 avatar
        James Charles

        I agree.

        Power corrupts. Absolute power corrupts absolutely.

        You can see this too a much lesser degree with the POTUS. Imagine if there were less checks and balances in place, what is he capable of?

        China’s Central Committee doesn’t control the Provinces that we’ll. Chinese National and special interest industries receive priority over “private” industry.

        Look at the recent changes in the US. The declaration of National Security to meet the authoritarian nationalist views of the far right.

    • 0 avatar
      thornmark

      the Envision was the stalking horse, a Chinese “Buick” imported to the US.

      and thanks to public awareness of what GM planned – more to come – its sales were poor

      As of 2019, the Envision has seen a downturn in the number of units being sold after its refresh, with only a 201-day turnover in terms of sales, making it the second weakest vehicle in the Buick lineup behind the Regal TourX

      • 0 avatar
        PrincipalDan

        FYI the rumor now has it that Buick will be getting a 2-row Acadia/Blazer sized crossover to replace the Lacrosse when it’s gone.

        BTW the rumored name (based on the EN naming convention for Buick CUVs and a GM trademark filing) is… Envoy.

      • 0 avatar
        NormSV650

        Thornmark, what is Acura’s to the added Buick models?

        Buick is working on a major crossover offensive that involves introducing five new crossover models by the year 2020. Some of these new Buick crossovers will be next-generation iterations of current models, while others will be all-new entries. gmauthority

  • avatar
    jatz

    Even China has business cycles. Got it.

  • avatar
    ToolGuy

    This situation is nothing that the right amount of cash on the hood won’t address (there is always a market-clearing price) – refer to the U.S. market over the last 10 years.

    Oh wait, you *care* about profit now? ::: Closes “Incentives” folder, opens “Portfolio Rationalization” folder :::

  • avatar
    conundrum

    Instead of reading this not-that-great speculation and subsequent comments, one could go to carsalesbase.com and see how the top 90 brands did in China during 2018.

    The analysis is also far in advance of this weak sauce opining. But speculation beats hard data every time around these parts.

    http://carsalesbase.com/china-car-sales-analysis-2018-brands/

    • 0 avatar
      ToolGuy

      conundrum,

      A big part of Matt’s article relates to capacity utilization. Your link doesn’t address capacity utilization, and offers very little in the way of causal analysis for the sales changes (which add up to an overall decline).

      If you are going to dismiss the article, every comment and the entire site, please back it up with more than hand-waving.


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