China’s shrinking car market is hitting foreign manufacturing groups hard, with some companies operating at a fraction of their potential output, sparking fears a number will be forced to quit the world’s biggest market.
Ford and Peugeot owner PSA have suffered the most, with their factories running well below full
capacity at historic lows because of plunging sales after last year’s reversal in the Chinese auto market the first in almost three decades.
Ford’s plants in China operated at 11 per cent of their potential output in the first half of the year, according to a Financial Times analysis of production data from its joint venture partner Chang’an Auto. Ford’s China sales fell 27 per cent year on year in the first half.
PSA’s plant with Chang’an produced just 102 cars in he first half of the year, according to China’s official auto industry association, meaning capacity use fell below 1 per cent. Its other joint venture with Dongfeng Auto ran at 22 per cent capacity. The group said China sales were down 62 per cent in the first half.
Factories generally need to operate at above 80 per cent capacity to break even, highlighting the extent of the problems facing Ford and PSA, analysts say. “Some OEMs [car groups] will need to consider their position in this market in the not-too-distant future,” said Robin Zhu, an analyst at Bernstein, predicting “very weak” earnings for major foreign groups in China due to over capacity.
For some automakers, especially those selling vehicles priced below Rmb150,000 ($22,000), China is “a lost cause”, said Jochen Siebert of consultancy JSC Automotive.
However, Patrick Yuan, an analyst at Jefferies, said overseas groups would try and tough it out. “China’s car market is the largest single market, which is too big to give up,” he said.
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