GM, Ford open Chinese assembly plants despite slack market
Auto sales in China are slowing and may fall for the first time in more than a decade, undercutting one of the few growth markets for automakers such as General Motors and Ford Motor Co., according to consulting firm Alix Partners.
The U.S. automakers expanded last year to capitalize on long-term growth and are now wrestling with a softer market, AlixPartners said in a study released Wednesday.
Carmakers won't get much relief in China until sales rebound because, even if the market grows this year, prices are under pressure, according to the study.
China has gone from being the auto industry's gold rush to being just like any other market, with slowing growth and pricing battles. Carmakers will have to realize that rampant expansion is gone, said John Hoffecker, chief of the firm's global automotive practice.
"The growth rates are slowing down," he said. "The question is, what will happen to pricing and profits? China is a stronghold for GM and many others."
Ford did not immediately respond to requests for a response to the AlixPartners study. Last year, Ford boosted production capacity in China by 30 percent in 2014, while GM boosted capacity by 20 percent.
In July, GM said it would invest $5 billion in new models for emerging markets, including China. Even with the current malaise, GM projects emerging markets to account for 55 percent of sales growth through 2030. China will generate 33 percent and mature markets will provide just 12 percent of additional sales, company President Dan Ammann said.
GM profits
General Motors has managed to keep profits in China by pushing SUVs and luxury cars from Cadillac. It reported in July that second-quarter equity income from China joint ventures totaled $502 million (3.2 billion yuan), up from $476 million a year earlier.
Still, GM sales in China fell in four of the past five months, including a 4.8 percent drop to 248,815 vehicles in August. For the first eight months, deliveries rose 2.3 percent to 2.2 million units.
In July, the company reduced its estimate of industrywide sales growth for the year.
Ford's joint ventures in China contributed $411 million to pretax profit in the second quarter. Last month, China sales fell 3 percent to 79,608 vehicles last month and are down 1 percent to 700,196 for the year through August.
Even with the slowdown, China will continue to be a smart place to invest, with growth going forward, Hoffecker said.
From 2005 through 2014, China's light-vehicle sales rose 19 percent a year. AlixPartners estimates that sales there will grow 4 percent a year on average until 2018 and nearly 3 percent annually until 2023.
That's still a pretty good place to do business, said Kevin Tynan, auto analyst for Bloomberg Intelligence. China will still buy more than 20 million cars this year, compared with more than 17 million in the U.S., he said.
"Even in contraction, they will still be in the ballpark of 20 million units," Tynan said. "That's a lot of vehicles."
Carmakers won't get much relief in China until sales rebound because, even if the market grows this year, prices are under pressure, according to the study.
China has gone from being the auto industry's gold rush to being just like any other market, with slowing growth and pricing battles. Carmakers will have to realize that rampant expansion is gone, said John Hoffecker, chief of the firm's global automotive practice.
"The growth rates are slowing down," he said. "The question is, what will happen to pricing and profits? China is a stronghold for GM and many others."
Ford did not immediately respond to requests for a response to the AlixPartners study. Last year, Ford boosted production capacity in China by 30 percent in 2014, while GM boosted capacity by 20 percent.
In July, GM said it would invest $5 billion in new models for emerging markets, including China. Even with the current malaise, GM projects emerging markets to account for 55 percent of sales growth through 2030. China will generate 33 percent and mature markets will provide just 12 percent of additional sales, company President Dan Ammann said.
GM profits
General Motors has managed to keep profits in China by pushing SUVs and luxury cars from Cadillac. It reported in July that second-quarter equity income from China joint ventures totaled $502 million (3.2 billion yuan), up from $476 million a year earlier.
Still, GM sales in China fell in four of the past five months, including a 4.8 percent drop to 248,815 vehicles in August. For the first eight months, deliveries rose 2.3 percent to 2.2 million units.
In July, the company reduced its estimate of industrywide sales growth for the year.
Ford's joint ventures in China contributed $411 million to pretax profit in the second quarter. Last month, China sales fell 3 percent to 79,608 vehicles last month and are down 1 percent to 700,196 for the year through August.
Even with the slowdown, China will continue to be a smart place to invest, with growth going forward, Hoffecker said.
From 2005 through 2014, China's light-vehicle sales rose 19 percent a year. AlixPartners estimates that sales there will grow 4 percent a year on average until 2018 and nearly 3 percent annually until 2023.
That's still a pretty good place to do business, said Kevin Tynan, auto analyst for Bloomberg Intelligence. China will still buy more than 20 million cars this year, compared with more than 17 million in the U.S., he said.
"Even in contraction, they will still be in the ballpark of 20 million units," Tynan said. "That's a lot of vehicles."
