With expected annual sales growth of five percent or so, China’s auto industry is poised for a bright future, but not every player is likely to share it. In fact, prospects are grim for many small domestic Chinese automakers. Technologically backward, these companies failed to make the most of their growth opportunities when industry sales were rising 30 percent a year.
And now, with competition and financial pressures intensifying, they have no choice but to sell part, if not all, of their assets to big state-owned companies. This month, Fujian Motor Industry Group Co., a small state-owned automaker in east China’s Fujian province, agreed to sell a controlling stake of its car unit, Southeast Motor Co., to state-owned Dongfeng Motor Corp.
Capable of producing 150,000 vehicles a year, Southeast Motor sold only 100,000 vehicles last year, exerting huge financial pressure on its parent. Meanwhile, a small SUV maker, ZX Auto Co., sold part of its assembly plant in the central China city of Yichang to state-owned Guangzhou Automobile Group Co.
Four years ago, ZX Auto was China’s leading exporter of pickups. But the company has been slow to improve its technology, and sales have stagnated. With annual capacity of 200,000 vehicles, ZX sold fewer than 63,300 SUVs and pickups last year.
In China, many other small and medium-sized automakers are grappling with difficulties similar to those of Southwest Motor and ZX Auto. Take Hawtai Automobile Group Co., a small SUV maker in the east China city of Rongcheng. In 2006, the company launched production of the Hyundai Terracan and Santa Fe, two old SUV models purchased from Hyundai Motor Co.
Supported by profits from its coal mines, Hawtai quickly raised production capacity and started making sedans. But hobbled by its weak brand and obsolete technology, Hawtai sold only 34,000 vehicles last year, 10 percent of its production capacity.
To make things worse, coal prices have declined, leaving Hawtai with little money to fund its auto production. Another example is Sichuan Auto Industry Co. Established in the late 1980s in the southwest China city of Chengdu, the small state-owned bus maker was purchased by a private property developer in 2002.
With financial support from the new owner’s property development business, Sichuan Auto started making SUVs in 2008. The company can build as many as 50,000 SUVs annually, yet sales last year were only 7,230 units.
Do companies such as Hawtai and Sichuan Auto have a chance to revive their auto business? The odds are very slim. Since 2011, auto sales in China have grown less than 10 percent annually. Global giants such as Volkswagen AG and General Motors have responded by introducing inexpensive models to inland Chinese cities, the traditional turf of domestic Chinese brands.
Burdened with overcapacity and unable to fend off competitors, these companies have become prime takeover targets for major state-owned automakers. These big automakers enjoy the blessing of China’s central government plus fat profits from their joint ventures with foreign automakers.
