China Carmakers to Start Consolidating, Official Says
China’s auto industry, the world’s most competitive, will likely consolidate from next year as slowing demand and rising materials costs crimp margins, an official in the country’s top planning agency said.
“Some weak brands and less competitive players will start to be pushed out next year,” Cheng Xiaodong, head of the vehicle-price monitoring arm of the National Development and Reform Commission, said in a phone interview yesterday. “Local automakers with small profit margins will be hit first.”
Chinese carmakers have been forced to slash prices, even as steel costs rise, to stand out among the 52 brands on sale, the most in any country. Car sales in Asia’s largest auto market have also fallen for the last two months as rising fuel prices and a 64 percent stock market slump curb demand.
“In a downturn, only strong players can survive,”said Huang Zherui, an analyst at CSM Asia in Shanghai. “Local carmakers may be hit the most by slowing demand as buyers of their vehicles have less purchasing powers than motorists opting for higher-end products.”
Still, combining with money-losing rivals may damp earnings at profitable carmakers. Dongfeng Motor Group Co., the country’s second-biggest listed automaker, posted a record plunge in Hong Kong trading on concerns it will have to buy other carmakers.
“It will be a painful process for major automakers like Dongfeng to absorb smaller players,” said Vivien Chan, an analysts at Sinopac Securities Asia Ltd. in Hong Kong. “They will have to go that way though, given that it’s the direction set by the government.”
Dongfeng tumbled 18 percent to close at HK$2.12, compared with a 4.8 percent drop for the benchmark Hang Seng Index. Denway Motors Ltd. lost 7.1 percent to HK$1.84.
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