China's auto industry, fuelled by overseas marques, continues its rapid expansion across the sector despite sluggish retail sales.
Car making in China |
As the Western markets continue to slow, BMW, Volkswagen and Opel are all looking to China to bolster sales, although many question the sustainability of such rapid expansion. BMW AG has asked for permission to increase production by 80%, VW will double capacity by 2018 and Opel plans to increase sales six fold, propelling China toward the Financial Times’ estimate of 40m units per year by 2020.
Munich-based BMW has applied for government approval to expand its annual production capacity to 360,000 units from 200,000 units per year, an increase of 80%. The company’s Chinese joint venture, BMW Brilliance Automotive Ltd, has two factories in the northern city of Shenyang, which produce the 3 and 5 series and the X1. BMW’s China sales rose 35% to 107,211 units in the first four months of this year, making it the German automaker’s largest market worldwide.-
Fellow German carmaker VW has also announced plans to raise production capacity to 4 million units per year by 2018. VW’s two JVs – FAW and SAIC – are investing 14 billion euros ($17 billion) to fuel the expansion, which could reach 3 million units per annum by as early as next year. The increase is a part of popular carmakers plan to eclipse rivals GM and Toyota by 2018.
Although modest in comparison, Opel’s planned increase from 5,000 units to 30,000 units per year is still significant. General Motors’ ailing unit, which sold 1.21 million units last year under its Opel and Vauxhall brands across Europe, Russia, and Turkey, is now looking to gain a foothold in the increasingly competitive Chinese market.
The glut of cars being pumped into dealerships across the country is arguably doing little to help stimulate the slowing economy, as manufacturing growth outpaces retail sales. In May, wholesale deliveries of passenger cars rose 23% to 1.28 million from a year earlier, whereas sales forecast continue to be readjusted. Passenger sales across the first 5 months of the year increased by only 5.5% to 6.33 million units – considerably lower than last year’s double-digit forecasts.
While May sales shot up by 16.6% – their second-highest point in 17 months – rising inventories and restrictive government policies in big cities are making it increasingly difficult for dealerships to turn a profit. According to Luo Lei, deputy secretary general of the China Automobile Dealers Association, oversaturation and stockpiling are forcing dealerships to make unsustainable price cuts – a trend that automakers are doing little to remedy.