China's vehicle manufactures have suffered due to intense competition and, surprisingly, poor sales of Japanese cars.
FAW Car Co saw a sharp decline in 2012, posting a massive 756m yuan ($122m) loss from 217m yuan ($35 million) profits in 2011. The company blamed the losses on “intense competition” from other brands, both foreign and domestic, as well as slow sales within its Japanese joint ventures. Sales of the once-popular Mazda 6, which FAW produces under a technology licensing agreement, were hit particularly hard.
Guangzhou-based GAC Group also reported a slide in net profit to 1.13bn yuan ($190mn) during the same period. Sources at the company claimed the 2011 earthquake and rising Sino-Japanese tensions seriously affected sales and production at its Japanese ventures. GAC’s Toyota and Honda sales dropped 8.8% and 12.7% year-on-year, respectively.
In a drive to help domestic manufacturers, and as part of a wider campaign for frugality, the government has launched a policy to purchase local cars in greater numbers.
The campaign is working. Xu Xianping, general manager of FAW group, says government buying has increased as a result. FAW recently delivered 500 high-end Hongqi H7 sedans for official use to 10 provincial governments across China. Although not yet available to the public, the luxury “Red Flag” motors are expected to cost around 280,000 yuan ($45,000) each.
However, just as the news of the government’s procurement drive came out, more than 100 of FAWs senior managers were detained by Communist Party investigators looking into missing company assets. As much as 10bn yuan ($1.16bn) worth of capital is thought to be missing at the Jilin-based company.