China carmakers struggle to succeed

PUBLISHED : Saturday, 19 April, 2014, 1:09am
UPDATED : Saturday, 19 April, 2014, 1:09am

Four years ago, a small Chinese carmaker had such big ambitions it broke ground on a US$1 billion plant to make more cars than Ford Motor. Then reality set in and Jilin Tongtian Automobile's factory site is now a pile of rubble.

Tongtian has stopped producing cars after struggling to compete. Near the site, in a province bordering North Korea, dust-covered metal cabinets are among the few traces the firm ever existed. It kept its car-maker licence, though, which are limited and therefore valuable in the world's biggest vehicle market.

With the Beijing car show set to begin next week, China is facing a reality check: six decades after setting out to create its own industry, the policies have failed to spawn a single brand able to compete globally. Instead, it has been plagued by overcapacity, easy money and dominance by foreign carmakers. Now the government is working to revise that approach, including reclaiming licences from weak players like Tongtian.

A lot of what the local automakers make is rubbish. They are more or less zombies

"A lot of what the local automakers make is rubbish," said Jochen Siebert, managing director of Shanghai-based JSC Automotive Consulting. "They are more or less zombies and there's no way for them to compete with the big boys."

China, which last year became the first country to see annual motor-vehicle sales of more than 20 million units, is betting that fewer carmakers will translate to better cars and stronger companies, just as the US car industry experienced at the turn of the 20th century, when hundreds of manufacturers sprouted and then collapsed until General Motors, Ford Motor and Chrysler emerged as the dominant trio.

The number of Chinese carmakers has ballooned through the years as the government promoted the industry as a pillar of the economy that would bring in investments and create skilled jobs. Municipal governments compete with each other to attract carmakers by dangling tax holidays, land and financing.

The result: there are about 70 major carmakers in China producing passenger vehicles, buses and trucks, according to the China Association of Automobile Manufacturers (CAAM). And that number doesn't even include manufacturers of low-speed vehicles used mainly in the country's rural areas.

Such numbers haven't translated to market share. Local car brands have seen their combined share of total sales shrink for seven months to 39.3 per cent of sales in March, down from 50.6 per cent in February 2010, according to CAAM.

"The slump exposes the weak competitiveness of local brands," Dong Yang, secretary-general of the association, which represents Chinese carmakers, said at a briefing in Beijing this month. "The time for hand-to-hand combat to the death between local and foreign brands has really started."

While the central government has voiced the need for consolidation in China's car industry for years, the drumbeat of official pronouncements has gotten louder more recently as Chinese carmakers continue to lose market share.

In 2009, the State Council set a goal for the top 10 carmakers to account for more than 90 per cent of the market and to form two to three carmakers that sell more than 2 million vehicles a year.

The Ministry of Industry and Information Technology (MIIT) followed up last October with a list of 48 carmakers that made few, if any vehicles. Twelve government ministries and agencies then issued a joint directive in January placing the car industry at the top of a list of nine that deserve "major focus" for consolidation.

The carmakers on the MIIT list have until October next year to meet minimum production levels - at least 1,000 passenger vehicles or 50 medium to heavy trucks, depending on category - or have their permits cancelled.