PortfolioChina’s automobile industry facing long-term headwinds, may force consolidations

China now churns out more new cars than the United States and Japan combined, but despite the industry’s huge capacity and potential, it faces immediate and longer term headwinds that could force many manufacturers to consolidate.

Last year, China’s automotive industry produced almost 24 million vehicles – more than double its output in 2009, when the country became the world’s largest auto manufacturer following the global financial crisis.

There should be a big domestic market for those cars. China currently has just over 100 vehicles for every 1000 people, lagging well behind the global average of 200 and miles off Japan, 600, and the US, almost 800. But anecdotal evidence says China’s new car sales are softening.

According to Goldman Sachs analysts, the volatile atmosphere caused by plunging stock markets and currency fluctuation is a problem, especially when combined with underwhelming economic growth.

“With higher uncertainty in the economy, firms and individuals tend to postpone irreversible investments and big-ticket purchases and wait for a better read on the future,” Goldman analysts wrote this week.

That’s not to say brighter economic times will provide a salve for China’s carmakers. Statistics show domestic-branded vehicles were only able to grab 41.5 per cent of market share in the first half of this year.