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Wednesday, 19 November 2008
Carmakers in China copy U.S. playbook
The Chinese auto industry is quietly pressing Beijing officials for help in coping with a sharp slowing in sales growth this autumn, top Chinese auto executives said in interviews here Tuesday.
GUANGZHOU: The Chinese auto industry is quietly pressing Beijing officials for help in coping with a sharp slowing in sales growth this autumn, top Chinese auto executives said in interviews here Tuesday.
Six years of sales growing at 20 percent or more annually have suddenly been turned this autumn to flat or slightly declining sales, a shock for an industry that has borrowed heavily to build ever more car factories for a market that seemed insatiable.
Citing the $25 billion in loans that the U.S. Congress had already voted to help American automakers step up their research spending, and the additional $25 billion in loans that the U.S. automakers are seeking this week to cope with a slow economy, Chinese executives are now telling Beijing that they need measures like lower taxes on new cars, lower fuel prices and increased grants for research into hybrid cars and other new technologies.
“The Chinese government will undoubtedly support us,” She Cairong, general manager of JAC Motors, said. He added that state-owned Chinese banks had already become more willing to lend money to Chinese automakers in recent weeks as bank regulators have eased restrictions on loans to heavy industry.
But She and other auto industry leaders said that while government officials had voiced concern to them about the industry’s deteriorating condition this autumn, there had been no specific initiatives.
“They’re asking the questions but they haven’t said anything yet” on how an aid package might be structured, said Frank Zhao, vice president and chief technology officer of Geely Automobile Holdings. “We really hope the Chinese government will come and help us.”
The Chinese government has already provided considerable help over the years with research and development spending, as well as loans from state-owned banks.
Michael Dunne, managing director for China at the market research firm J.D. Power & Associates, said in a telephone interview from Shanghai that the executives’ remarks represented a shift in the position of the Chinese auto industry.
“This is the first I’ve heard of it,” he said. “As the market slows down, Chinese automakers are going to face competition as they never have before.”
There is some disagreement within the Chinese auto industry on how the government can be most helpful. Some companies, like Geely, are looking for more government grants to help them develop hybrid gasoline-electric cars and other technologies for which research spending may be cut if sales do not recover.
But Zheng Qinghong, the general manager of Guangzhou Auto, one of the largest and fastest-growing Chinese automakers, said the industry needed the government to help consumers become more enthusiastic again about buying cars.
“The best way is to boost growth in demand” for cars, through steps like lower car taxes and lower fuel prices, he said in an interview.
Western multinationals are also likely to benefit at least indirectly from any Chinese government initiative to help the auto industry, because in order to do business in China they must go through joint ventures with Chinese automakers, most of which are partly or entirely owned by the government.
Jeffrey Shen, chief executive and president of one of these joint ventures, Changan Ford Mazda Automobile, said that he did not know how the government would help the auto industry but that some help was inevitable. “I’m sure it will come - it will be both” extra assistance for research and greater availability of loans, he said.
The renewed willingness of state-owned banks to lend money to the auto industry this autumn is in contrast with the situation in the United States, where the Big 3 have found banks and other investors leery of loans.
Government-mandated lending quotas, not interest rates, tend to be the most important limit on bank lending in China. Regulators began easing the quotas this autumn after four years of fairly tight restrictions imposed in an effort to control the growth of the money supply and inflation.
Direct loans from the government of the sort under discussion in Washington are not needed in China, Zheng said. “For now, the Chinese auto industry doesn’t need saving” in the same way as the U.S. industry, he said.
Chinese automakers began facing real difficulties only in the third quarter and have not released results for that period; many release their results twice a year, not quarterly.
But they could face even tougher times in their home market in the months ahead. Dealership lots across China became increasingly crowded with unsold cars as sales were slightly lower in August and September than a year earlier. Yet manufacturers increased their shipments of new vehicles to dealerships last month by 10 percent compared to a year earlier, in a bid to keep new factories busy and avoid layoffs.
Chinese automotive retail sales figures for October are due this week and will most likely show a further decline, which could trigger another round of price cuts in a market where discounting is already becoming increasingly common, Dunne said.
The Chinese auto industry faces several threats simultaneously. Weakening economic growth, falling real estate prices and a yearlong plunge in the stock market have made consumers wary of spending money. Fuel prices in China are still high despite the recent decline in world oil prices. And Chinese auto exports are starting to crumble.
China pushed up the regulated retail gasoline and diesel prices at service stations to more than 80 cents a liter, or $3 a gallon, over the past year in response to high oil prices, and it has not lowered retail prices as oil prices have plunged. The government is trying to encourage energy conservation and allow oil refiners to recover financially from sometimes being forced to sell gasoline and diesel below cost earlier this year during the spike in oil prices.
China’s top three export markets for fully assembled vehicles are Russia, Ukraine and Vietnam, all of which are struggling with the financial crisis.
The company has seen its monthly exports to Russia plunge 40 percent in the past three months, said Steven Wang, the deputy manager of the company’s international trade division. But it has still managed to avoid layoffs because domestic sales are less affected.
With the largest Chinese automakers involved in joint ventures with U.S. automakers, and with the entire Chinese auto industry now seeking its own forms of government help as well, criticism of any bailout for Detroit has been muted. Producers elsewhere in Asia, facing declining markets at home as well, have also been hesitant to criticize.
“We support vigorous competition in the automotive market place and recognize there may be extraordinary situations when such a vital sector of the American economy may require unprecedented actions to assure its long-term viability and a healthy American economy,” said Jake Jang, a spokesman for Hyundai Motor in South Korea.
But managers at a few Chinese manufacturers, especially those with hopes of entering the U.S. market someday, still dislike assistance for Detroit.
“If GM, Ford and Chrysler get a lot of support from their government, it’s not fair,” said Gordon Chen, international business manager of Changfeng Motor, which has displayed cars at the last two Detroit auto shows to prepare for entry into the U.S. market in 2011 or 2012.
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Carmakers in China copy U.S. playbook
By Keith Bradsher
18 November 2008
GUANGZHOU: The Chinese auto industry is quietly pressing Beijing officials for help in coping with a sharp slowing in sales growth this autumn, top Chinese auto executives said in interviews here Tuesday.
Six years of sales growing at 20 percent or more annually have suddenly been turned this autumn to flat or slightly declining sales, a shock for an industry that has borrowed heavily to build ever more car factories for a market that seemed insatiable.
Citing the $25 billion in loans that the U.S. Congress had already voted to help American automakers step up their research spending, and the additional $25 billion in loans that the U.S. automakers are seeking this week to cope with a slow economy, Chinese executives are now telling Beijing that they need measures like lower taxes on new cars, lower fuel prices and increased grants for research into hybrid cars and other new technologies.
“The Chinese government will undoubtedly support us,” She Cairong, general manager of JAC Motors, said. He added that state-owned Chinese banks had already become more willing to lend money to Chinese automakers in recent weeks as bank regulators have eased restrictions on loans to heavy industry.
But She and other auto industry leaders said that while government officials had voiced concern to them about the industry’s deteriorating condition this autumn, there had been no specific initiatives.
“They’re asking the questions but they haven’t said anything yet” on how an aid package might be structured, said Frank Zhao, vice president and chief technology officer of Geely Automobile Holdings. “We really hope the Chinese government will come and help us.”
The Chinese government has already provided considerable help over the years with research and development spending, as well as loans from state-owned banks.
Michael Dunne, managing director for China at the market research firm J.D. Power & Associates, said in a telephone interview from Shanghai that the executives’ remarks represented a shift in the position of the Chinese auto industry.
“This is the first I’ve heard of it,” he said. “As the market slows down, Chinese automakers are going to face competition as they never have before.”
There is some disagreement within the Chinese auto industry on how the government can be most helpful. Some companies, like Geely, are looking for more government grants to help them develop hybrid gasoline-electric cars and other technologies for which research spending may be cut if sales do not recover.
But Zheng Qinghong, the general manager of Guangzhou Auto, one of the largest and fastest-growing Chinese automakers, said the industry needed the government to help consumers become more enthusiastic again about buying cars.
“The best way is to boost growth in demand” for cars, through steps like lower car taxes and lower fuel prices, he said in an interview.
Western multinationals are also likely to benefit at least indirectly from any Chinese government initiative to help the auto industry, because in order to do business in China they must go through joint ventures with Chinese automakers, most of which are partly or entirely owned by the government.
Jeffrey Shen, chief executive and president of one of these joint ventures, Changan Ford Mazda Automobile, said that he did not know how the government would help the auto industry but that some help was inevitable. “I’m sure it will come - it will be both” extra assistance for research and greater availability of loans, he said.
The renewed willingness of state-owned banks to lend money to the auto industry this autumn is in contrast with the situation in the United States, where the Big 3 have found banks and other investors leery of loans.
Government-mandated lending quotas, not interest rates, tend to be the most important limit on bank lending in China. Regulators began easing the quotas this autumn after four years of fairly tight restrictions imposed in an effort to control the growth of the money supply and inflation.
Direct loans from the government of the sort under discussion in Washington are not needed in China, Zheng said. “For now, the Chinese auto industry doesn’t need saving” in the same way as the U.S. industry, he said.
Chinese automakers began facing real difficulties only in the third quarter and have not released results for that period; many release their results twice a year, not quarterly.
But they could face even tougher times in their home market in the months ahead. Dealership lots across China became increasingly crowded with unsold cars as sales were slightly lower in August and September than a year earlier. Yet manufacturers increased their shipments of new vehicles to dealerships last month by 10 percent compared to a year earlier, in a bid to keep new factories busy and avoid layoffs.
Chinese automotive retail sales figures for October are due this week and will most likely show a further decline, which could trigger another round of price cuts in a market where discounting is already becoming increasingly common, Dunne said.
The Chinese auto industry faces several threats simultaneously. Weakening economic growth, falling real estate prices and a yearlong plunge in the stock market have made consumers wary of spending money. Fuel prices in China are still high despite the recent decline in world oil prices. And Chinese auto exports are starting to crumble.
China pushed up the regulated retail gasoline and diesel prices at service stations to more than 80 cents a liter, or $3 a gallon, over the past year in response to high oil prices, and it has not lowered retail prices as oil prices have plunged. The government is trying to encourage energy conservation and allow oil refiners to recover financially from sometimes being forced to sell gasoline and diesel below cost earlier this year during the spike in oil prices.
China’s top three export markets for fully assembled vehicles are Russia, Ukraine and Vietnam, all of which are struggling with the financial crisis.
The company has seen its monthly exports to Russia plunge 40 percent in the past three months, said Steven Wang, the deputy manager of the company’s international trade division. But it has still managed to avoid layoffs because domestic sales are less affected.
With the largest Chinese automakers involved in joint ventures with U.S. automakers, and with the entire Chinese auto industry now seeking its own forms of government help as well, criticism of any bailout for Detroit has been muted. Producers elsewhere in Asia, facing declining markets at home as well, have also been hesitant to criticize.
“We support vigorous competition in the automotive market place and recognize there may be extraordinary situations when such a vital sector of the American economy may require unprecedented actions to assure its long-term viability and a healthy American economy,” said Jake Jang, a spokesman for Hyundai Motor in South Korea.
But managers at a few Chinese manufacturers, especially those with hopes of entering the U.S. market someday, still dislike assistance for Detroit.
“If GM, Ford and Chrysler get a lot of support from their government, it’s not fair,” said Gordon Chen, international business manager of Changfeng Motor, which has displayed cars at the last two Detroit auto shows to prepare for entry into the U.S. market in 2011 or 2012.
Choe Sang-Hun contributed reporting from Seoul.
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