Fiat CEO has warned the global auto industry not to underestimate the threat of Chinese car exports.
Vehicles ready for export Image: Santa Rosa |
Sergio Marchionne, CEO of Fiat Group Automobiles S.p.A. has indicated it would not be long before the world's roads start to become populated by made-in-China cars, citing massive increases year-on-year vehicle exports as a sign of things to come.
Marchionne stated that “even assuming China were to export only 10% of what it produces, the risk we face in our home markets is enormous.” Chinese automakers saw exports increase 50% year-on-year, with a 76% spike in July with 44,800 units exported.
Marchionne's fear is that China's capacity will outstrip demand, causing global automakers to look for markets to dump excess Chinese inventories, meaning increased pressure from cheap exports on automakers. According to the National Development and Reform Commission, China could have the capacity to build 40m vehicles a year by 2020, whereas demand is expected to be around 30m units. If this happens, China's overcapacity could be nearly equal to the entire U.S. market. China's current capacity stands at around 20 million units.
Interestingly, much of the surplus inventory belongs to international joint ventures between Chinese manufacturers and likes of VW, GM, Nissan, Hyundai and Peugeot. If China increases its exports of these brands, western factories will have a tough time competing and may eventually be forced out of business by market pressures, making China the car factory to the world.
Yin Tongyao, president of Chery Automobile, China's largest vehicle exporter, claims it will be “dozens of years” before Chinese cars are ready for developed markets such as the U.K., Italy and the US, as they are generally cheap, have poor road safety records and no parts networks. However, sales to low income countries like Brazil, Chile, Russia, Iran, Vietnam, Indonesia and Algeria, where buyers want a cheap, functional car, continue to boom.
China's recent ventures in developing countries include Chery's new JV in Africa, through the China-Africa development fund. The venture will have a registered capital of 1.3 billion yuan ($203.1m) and will fund construction of Chery Automobile plants across Africa. GM China with partner SAIC Motors will also start building a plant in India next year, which will build microvans from kit form in an effort to penetrate the fast-growing rural market.
In the first seven months of 2011, China exported over 262,500 vehicles and its global influence continues to expand. Whether or not it is the “enormous risk” that Marchionne perceives, times are certainly changing and world markets will no doubt be influenced by the rise of Chinese exports over the coming years.