HONG KONG: Chinese carmakers are involved in a slow-motion wreck.
Falling sales hit Geely Automobile Holdings and Great Wall Motor harder in the first half than rivals partnered with foreign marques.
Both companies have started seeking JVs, too. A better route to recovery would be industry consolidation, and soon.
Domestic manufacturers are getting crunched from every direction. The withdrawal of government incentives last year caused customers to accelerate their purchases.
Geely, whose parent company owns Volvo, blamed new emissions standards for its aggressive price cuts, and by extension a 40% fall in profit through the end of June.
The bottom line at US$9 billion SUV maker Great Wall shrank 60% for similar reasons. Beijing is also now slashing subsidies for electric vehicles, putting even more pressure on margins.
Some sympathy might be expected from the central government, which considers autos a “pillar” industry.
Yet Beijing is also aware the country has far too many car companies, and that too many of them rely too heavily on shared revenue from overseas JVs, which has crippled their export competitiveness.
Sales of BMW models, for example, made up 90% of revenue at US$5 billion Brilliance China Automotive, whose profit fell just 9% in the first half; Guangzhou-based GAC relies on its relationship with Toyota to compensate for slackening demand for its unfortunately named Trumpchi sedan.
Local manufacturers are losing market share at home. It was down to 36% in July, after they ceded 3.9 percentage points from a year earlier.
Even Geely and Great Wall, which had found some market traction for their own models, have started flirting with overseas rivals. The better ones, however, are mostly taken.
Domestic mergers make more sense. Geely and Great Wall are up against mordant state-backed giants such as FAW, along with dozens of smaller rivals and hundreds of EV startups.
Local officials stubbornly prop up weak manufacturers to preserve employment, which keeps them running but weak.
The long-expected combination of FAW with Dongfeng and Changan, for example, has yet to happen. It’s time to start revving up these sorts of deals.
> This article is part of Reuters BreakingViews commentary provided by Reuters correspondents from around the world
