Chinese officials are nervous about the Chinese economic downturn and may even be a bit scared. But global automakers are still as optimistic as ever because they have invested heavily in future developments.
Last month, the Central Bank of China unexpectedly lowered interest rates to reverse the weakness in economic development, which has weakened demand for cars.
However, international automakers are still doing their part and continue to insist that their large-scale production capacity is growing. Some even said that the sales were not good because they did not invest enough.
Qian Huikang, president of General Motors (China) Co., admitted in an informal occasion at the Global Automotive Forum in Wuhan in October: "As we continue to move forward, there is a high probability of capacity problems."
However, like many executives, Qian Huikang predicts that it is the competitors, not themselves, who feel pressured. He insisted that "our investment takes into account the development potential and growth of this market, and we believe that we are in a favorable position."
China’s once-selling sales are rapidly cooling. According to the China Association of Automobile Manufacturers, total car sales in the first 10 months of this year rose by 7% to 19 million. In comparison, sales for the full year of 2013 increased by 14%.
Sales rose only 3% in September – the smallest increase in 19 months – and growth in October was 3%.
The decline in sales growth to single digits may be a headache for the auto industry, which is investing in the top expectations of development. But international brands still believe in the promise of long-term expansion. They feel that they are better able to withstand temporary weakness than their weaker domestic competitors.
James Chao, director of advisory services for IHS Automotive Asia Pacific, said, "This is a way to get to the front of the mountain."
Sales are declining as capacity increases, which is a real problem, especially for domestic brands such as Geely, Chery and Great Wall. The lost market share of these companies has been captured by international brands, the company's development is difficult, and capacity utilization has declined.
Chao estimates that the capacity utilization rate of domestic brands is about 65%, while that of international brands is 85%.
But the overall trend is disappointing for all companies. According to HIS Automotive, China's capacity utilization rate was 91% in 2010 across the industry. But next year it is expected to fall to 68%, and has been hovering around 70% since then until 2020.
In contrast, in the United States, the trend is just the opposite. The utilization rate in 2010 was 69%, and it is forecast to be 95% next year, and then remain above 90% until 2020.
Zhang Xiyong, general manager of Beijing Automotive Industry Holding Co., Ltd., which cooperates with Hyundai and Daimler Automotive Co., said, "China suffers from overcapacity."
Greater capacity However, almost every global car manufacturer continues to increase capacity. GM plans to invest $14 billion in China between 2014 and 2018 to open five assembly plants. GM's expansion target is to achieve sales of just under 5 million vehicles in China.
Ford plans to open a plant with an annual output of 300,000 cars in Chongqing before the end of the year and another plant with an annual capacity of 250,000 cars in Hangzhou next year.
Even if the momentum declines, the sales of the two automakers are steadily increasing.
GM's sales in China in October rose 3% from a year earlier. Compared to October 2013, 12% growth has declined. Ford Motor Company’s sales in China fell by 1% in October.
Fiat Chrysler Automobile Company and its joint venture partner Guangzhou Automobile Group Co., Ltd. are not to be outdone. They are building a second assembly plant in Guangzhou and plan to produce Jeep cars when they open next year. Fiat Chrysler envisions an annual production of 850,000 cars in China in 2018, compared with just 130,000 last year.
Volkswagen has accelerated its investment for the first time in many years, despite its crisis due to the slowdown in China's economic growth, as 38% of its global sales come from the Chinese market.
In fact, Ford and Volkswagen blamed their recent sales weakness on production bottlenecks and never worried about overcapacity. Chao said, "High utilization is limiting their sales."
Demand for crossovers and luxury cars has been stable. Global brands are better in these market segments, and sales of these high-margin products are expected to soar in the next few years.
China's demand for luxury cars is expected to surpass the US next year. IHS predicts that by 2020, the annual sales of luxury cars will be expanded to 2.4 million units, compared with an estimated 2 million annual sales of luxury cars in the United States.
Automakers are also turning their attention to new sources of income, including lending to emerging lenders.
According to PwC Autofacts, about 20% of cars in China were purchased through loans last year, compared with 85% in the US. However, deregulation is expected to drive growth in auto loans and leasing. PwC predicts that in the next five years, only one lease will increase by 25% year by year.
Scale issues The sheer size of the Chinese market has made auto executives covet. IHS expects China's light vehicle sales to increase from 23 million this year to 35.2 million in 2026. In contrast, the US's sales forecast for 2026 is 16.6 million, which is almost unchanged from this year's level.
The factors driving the surge in Chinese car sales are lower car penetration rates and a large population that can afford cars.
Ralf Cramer, CEO of German supplier Continental China, said, "There are not millions of people who have money to buy cars in the future, but hundreds of millions." "We think there will be very, very high demand in the future."
Moreover, foreign automakers are winning the market at local prices. By October, the market share of international brands had climbed to 62.2%, an increase of 2.3 percentage points over the same period of the previous year, which reduced the market share of domestic brands to 37.8%.
GM's Qian Huikang said, "If you look at the health of the entire automotive industry, you will find that it is closely related to the health of the overall economy." "I think the economy is very well managed. Although there is still some slowdown. I think deceleration is managed in a very, very healthy way."

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