Carmakers curb China output as sales growth stalls
Volkswagen AG and other major carmakers have begun reining in Chinese output, wages and other costs, as executives attending the Frankfurt auto show put a brave face on China's sharp slowdown.
The German automaker's Chinese joint venture, FAW-Volkswagen Automobile Co., is canceling staff bonuses and cutting shifts at its plants near Changchun in northeast China, sources said.
The bonuses that have been scrapped typically account for more than half of the assembly-line workers' take-home pay.
Volkswagen's premium Audi brand also said it had reduced output at its Chinese plants, trimming the working week to five days from seven in response to lower demand.
And German rival BMW AG has reduced Chinese output of its locally produced 3- and 5-series models. "We reacted relatively fast," BMW CFO Friedrich Eichiner told journalists. "We are not stockpiling."
Car sales in China, until recently the profit engine for automakers around the world, have been hit by a cooling economy and a plunging stock market. Demand has been flat in the first eight months, and sales for the full year could drop for the first time since the market took off in the late 1990s.
At the Frankfurt auto show, industry executives expressed confidence about the long-term growth potential of the Chinese market, and said any short-term hit could be offset by a strengthening recovery in Europe.
Industry data showed European car sales jumped 11.5 percent year on year in August.
But some analysts said the Chinese slowdown was coming at a time when carmakers are still opening factories in the country, creating excess capacity that could weigh on profits.
Leading research group IHS Automotive expects carmakers' capacity utilization rates in China to drop to 65 percent, down from 70 percent last year.
French carmaker Renault SA also told Reuters the slowdown in China could drag global auto market growth below the 1 percent it had previously forecast for 2015.
It predicts a slight rebound in China next year, with global growth of 2 to 3 percent, but Renault expects Europe to slip back from a stronger-than-expected 7 to 8 percent increase this year to just 2 percent in 2016.
"Very depressed"
"The mood is very depressed at VW, BMW or GM," said Clemens Wasner of Austrian automotive consultancy EFS, which advises several German carmakers in Asia.
China has accounted for more than half of VW's profit in recent years and about 40 percent at GM, which is pursuing a $14 billion (89 billion yuan) expansion in China with its local partners.
VW and General Motors have begun trimming local production -- by around 5 percent in July -- according to one China-based consultant.
GM President Dan Ammann told Reuters TV he had had "some sleepless nights but we feel like we're in a good position" in China, pointing out that the company was about to release several new SUVs "right into the sweet spot where there's still strong growth."
In May, General Motors China chief Matt Tsien said GM was determined to keep operating margins as high as 9 to 10 percent by selling more SUVs and premium cars.
GM ruled out a significant review of its China plans as recently as July. According to a source, nonetheless could delay plans for production capacity increases, reduce shifts, and cut workers' bonuses.
"They can immediately reduce extra months of salary payments which are very common in the good times," the source said.
Volkswagen CEO Martin Winterkorn told Reuters TV in Frankfurt he remained upbeat about China, but noted a shift in demand there.
"The eastern part of China is rather stagnating, while the west is growing," he said. "Many people live in the west and we just built a factory there. We are looking to China with confidence and expect to keep growing."
Audi chief Rupert Stadler, meanwhile, told Reuters TV the brand expected "further growth in China over the medium term ... and will not change our investment plans."
BMW, the world's biggest luxury carmaker, warned last month its forecasts for this year could be at risk from any further deterioration in the Chinese market, where its sales are falling for the first time in a decade.
Eichiner said on Tuesday he saw no reason for BMW to change its full-year targets, though it was too early to talk of a recovery in Chinese demand.
German rival Daimler AG said it had no plans to revise production in China and saw no risk of overcapacity at its plants there.
However, PSA Peugeot Citroen's premium DS brand said it was helping its Chinese dealers to refinance and expected to fall short of its full-year sales network expansion target.
The bonuses that have been scrapped typically account for more than half of the assembly-line workers' take-home pay.
Volkswagen's premium Audi brand also said it had reduced output at its Chinese plants, trimming the working week to five days from seven in response to lower demand.
And German rival BMW AG has reduced Chinese output of its locally produced 3- and 5-series models. "We reacted relatively fast," BMW CFO Friedrich Eichiner told journalists. "We are not stockpiling."
Car sales in China, until recently the profit engine for automakers around the world, have been hit by a cooling economy and a plunging stock market. Demand has been flat in the first eight months, and sales for the full year could drop for the first time since the market took off in the late 1990s.
At the Frankfurt auto show, industry executives expressed confidence about the long-term growth potential of the Chinese market, and said any short-term hit could be offset by a strengthening recovery in Europe.
Industry data showed European car sales jumped 11.5 percent year on year in August.
But some analysts said the Chinese slowdown was coming at a time when carmakers are still opening factories in the country, creating excess capacity that could weigh on profits.
Leading research group IHS Automotive expects carmakers' capacity utilization rates in China to drop to 65 percent, down from 70 percent last year.
French carmaker Renault SA also told Reuters the slowdown in China could drag global auto market growth below the 1 percent it had previously forecast for 2015.
It predicts a slight rebound in China next year, with global growth of 2 to 3 percent, but Renault expects Europe to slip back from a stronger-than-expected 7 to 8 percent increase this year to just 2 percent in 2016.
"Very depressed"
"The mood is very depressed at VW, BMW or GM," said Clemens Wasner of Austrian automotive consultancy EFS, which advises several German carmakers in Asia.
China has accounted for more than half of VW's profit in recent years and about 40 percent at GM, which is pursuing a $14 billion (89 billion yuan) expansion in China with its local partners.
VW and General Motors have begun trimming local production -- by around 5 percent in July -- according to one China-based consultant.
GM President Dan Ammann told Reuters TV he had had "some sleepless nights but we feel like we're in a good position" in China, pointing out that the company was about to release several new SUVs "right into the sweet spot where there's still strong growth."
In May, General Motors China chief Matt Tsien said GM was determined to keep operating margins as high as 9 to 10 percent by selling more SUVs and premium cars.
GM ruled out a significant review of its China plans as recently as July. According to a source, nonetheless could delay plans for production capacity increases, reduce shifts, and cut workers' bonuses.
"They can immediately reduce extra months of salary payments which are very common in the good times," the source said.
Volkswagen CEO Martin Winterkorn told Reuters TV in Frankfurt he remained upbeat about China, but noted a shift in demand there.
"The eastern part of China is rather stagnating, while the west is growing," he said. "Many people live in the west and we just built a factory there. We are looking to China with confidence and expect to keep growing."
Audi chief Rupert Stadler, meanwhile, told Reuters TV the brand expected "further growth in China over the medium term ... and will not change our investment plans."
BMW, the world's biggest luxury carmaker, warned last month its forecasts for this year could be at risk from any further deterioration in the Chinese market, where its sales are falling for the first time in a decade.
Eichiner said on Tuesday he saw no reason for BMW to change its full-year targets, though it was too early to talk of a recovery in Chinese demand.
German rival Daimler AG said it had no plans to revise production in China and saw no risk of overcapacity at its plants there.
However, PSA Peugeot Citroen's premium DS brand said it was helping its Chinese dealers to refinance and expected to fall short of its full-year sales network expansion target.
