Faced with a rapid drop in car sales in China it is an entire industry (manufacturers, equipment manufacturers, dealers) that is forced to adapt to this new situation. The blow is hard for companies that have often invested billions of dollars over the past decade in hopes of taking advantage of the extraordinary growth of first market automobile in the world.
On Thursday, South Korea’s Hyundai has confirmed its intention to trim down the country. Arriving in China fifteen years ago in alliance with the Chinese BAIC, Hyundai is now considering suspending the production of one of its three factories in Beijing next month, which could lead to dismissal or transfer of 2,000 employees. In February, the group put in place a voluntary retirement plan.
overcapacity
Like most manufacturers in China, Hyundai today faces significant overcapacity. While it is able to release 1.8 million vehicles a year from its five Chinese plants, Hyundai has sold “only” 750,000 cars last year, a 9% drop over a year and nearly one third compared to 2016.
Other car manufacturers are reducing their activities in China. The US Ford would consider removing 2,000 positions in its Chongqing factories, about 10% of the staff of its joint venture with Changan. Departures – often by non-renewal of contracts – have also begun for several months. Ford had the worst performance of builders in the Chinese market with sales falling 37% in 2018. The Japanese Suzuki has announced in September that it will stop all production in China .
“No sign of improvement”
After a decline of 3% last year (never seen in twenty years!), The prospects are hardly bright. Auto sales fell 15.8 percent in January for the seventh consecutive month and “there is no sign of improvement on the horizon,” said Xu Haidong, deputy secretary general of the Association of Chinese Automobile Manufacturers (CAAM) last month. The pressure is also strong on Chinese brands. Among the hundreds of local builders, “2019 should be a year of survival for the better but also mergers and reorganizations,” said the association.
In late January, the government urged local authorities to take action to boost vehicle sales in rural areas. Since then, few incentive plans have been detailed. But manufacturers and dealers take the lead and do not hesitate to make generous discounts and attractive credits to encourage demand.
Price reductions
BAIC has reduced the price of its Senova Zhidao sedan by about $ 1,000, Bloomberg said. Changan offers a premium of up to $ 3,330 to buyers of its Oushan models. And Volkswagen has set up, with his partner FAW, a scrap premium of up to $ 1,800 in some campaigns for any recovery of an old Volkswagen.
But price cuts are also to be handled with caution. Tesla has just learned the hard way, seeing in some of its stores tumble owners disgruntled to have paid high prices for freshly imported models from the United States.
The startups Chinese NIO, rival of Tesla, ended its Shanghai factory project and gave up producing its own electric vehicles, after having suffered heavy losses last year. NIO, funded by China’s net giants Baidu and Tencent, will continue to have its cars produced by the JAC public group. In the first two months of 2019, the start-up says it has seen a slower than expected slowdown in sales, to 2,600 units, due to Lunar New Year festivities, the decline in a purchase subsidy clean vehicles and the general sluggishness of the Chinese economy.