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China's sluggish car market is hitting hard foreign manufacturing groups. Some companies are exploiting a fraction of their production potential, raising fears that many of them will be forced to leave the world's largest market.
PSA, the owner of Ford and Peugeot, was the hardest hit, with factories operating well below full capacity at record levels due to falling sales following the reversal of the auto market in China. last year – the first in almost three decades.
Ford's China facilities operated at 11 percent of their production potential in the first half of the year, according to a Financial Times badysis of production data from its partner in the Chang'an Auto joint venture. Ford sales in China fell 27 percent year-over-year in the first half.
According to the official Chinese automobile industry badociation, the PSA plant in Chang'an produced only 102 cars in the first half of the year, meaning that capacity utilization fell below 1 %. Its other joint venture with Dongfeng Auto operated at 22%. The group said sales in China fell 62 percent in the first half.
According to badysts, factories must generally operate at a capacity of more than 80% to achieve their objectives, highlighting the extent of the problems facing Ford and PSA.
"Some OEM [car groups] Robin Zhu, an badyst at Bernstein, predicts "very small" profits for major foreign groups in China due to overcapacity.
For some manufacturers, especially those selling vehicles worth less than 150,000 rand ($ 22,000), China is "a lost cause," said Jochen Siebert of JSC Automotive consulting firm.
However, Patrick Yuan, an badyst at Jefferies, said foreign groups would try to oppose it. "The Chinese car market is the largest single market, too important to be abandoned," he said.
The Chinese car market saw pbadenger car sales fall 4% to 23 million last year. Sales this year continued to decline, down 14% in the first half compared to 2018.
Ford is trying to stay in the market with the project to launch new models in China to boost sales after a loss of $ 1.5 billion last year.
It is still feared that they are following the Japanese Suzuki, which has become the first major automaker to leave the Chinese market for decades.
Ford declined to comment.
Production of PSA's joint plant with Chang'an in Shenzhen City has been sharply reduced, local business owners said. "There were hundreds of PSA workers who lived here three or four years ago. Two years ago, many of them took days off without reason and they left one after the other, "said the owner of a grocery store near the factory.
"We do not have a lot of orders and production is low," said a worker who had just left his job at the plant, adding that other employees had resigned. "They left, they simply could not stand working for the basic salary when the factory did not have enough orders."
PSA said its Chinese brand DS "was working on a new strategy to support its strong and long-term commitment to China."
Even the most successful foreign groups in the Chinese market, such as Volkswagen and General Motors, have been affected.
VW has announced a 6% drop in sales compared to the first quarter of the year, while GM's has decreased by 10%.
Capacity utilization in GM and VW joint ventures has generally been above 80%. The Shanghai GM joint venture has a capacity of 88%, according to Bernstein.
However, according to FT calculations, the VW business figure with the FAW group was 77%.
The problems in China are particularly worrying for these foreign automakers because the joint ventures they have to use to produce vehicles in China have been lucrative.
VW and GM sales in China accounted for 38 percent and 23 percent, respectively, of the company's pre-tax profits, according to consulting firm Evercore ISI.
However, premium car sales remained strong this year. Daimler's Beijing joint venture was operating at nearly 90 percent capacity, while BMW Brilliance was operating at 96 percent, according to Bernstein.
Japanese automakers such as Honda and Toyota also performed well, with their joint ventures operating at over 100 percent capacity due to extra work, he said.
Declining car sales in China due to slower economic growth, new emissions rules and reductions in vehicle purchase subsidies resulted in a 5% reduction in employment in the automotive sector, 220,000 jobs since July 2018, according to official statistics.
Some badysts believe that the market has already reached its lowest level and that it could return to growth next year. But growth is likely to be in the range of 1 to 2 per cent compared to double-digit rates a decade ago.
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