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During the past three months， automobile sales and production have consistently declined over the same period as last year. In turn， auto companies are lowering prices to reduce inventory and alleviate financial pressure.
At the beginning of 2015， the China Association of Automobile Manufacturers（CAAM） predicted China’s automobile sales would grow by 7 percent this year. But the association was not as optimistic at the end of the first half of the year， because statistics showed that auto sales in the first half increased only by 1.43 percent， dropping nearly 7 percentage points compared with the same period in 2014. Thus， the association lowered its yearly growth forecast to 3 percent.
With the release of July’s and August’s lackluster numbers， many industrial insiders now expect to see negative growth in China’s auto market， a rarity. According to the CAAM， auto sales in China declined 7.12 percent and 3 percent year on year， in July and August， respectively.
According to the 2015 China Automotive Outlook recently released by global business advisory firm AlixPartners， China’s auto market is entering a “new normal” this year with low single-digit growth expected， while total annual sales volume may record its first contraction since the 2008 global recession. The report expects auto sales to grow 4.1 percent annually through 2018 then slow to an annual growth rate of 2.9 percent in 2023. This is a marked departure from the past 10 years that saw a compound annual growth rate of 19.3 percent.
“Unless a strong turnaround is logged in the second half of the year， 2015 is likely to be a downbeat year for automakers and dealers since the market were recovered from the 2008 global recession，” AlixPartners Managing Director Lian Hoon Lim said.“Inventories are increasing， sales are slowing and OEMs are starting to reconsider their production strategy—all signs of increasing competition and a much tougher environment.”
As the Chinese economy enters a new normal， the automotive industry is also entering a period of transformation and readjustment， said Qu Guochun， Deputy Director of the Department of Equipment Industry of the Ministry of Industry and Information Technology， at a forum on automotive industry on September 12. The industry will face fiercer competition in the future， and its profitability will be seriously impacted. This year’s profits are significantly lower than before， and conditions may worsen for a longer stretch. Pressure on domestic brands
Bai Qingyuan， Vice General Manager of Dongfeng Yulong Motor Corp.， compares this year’s auto market to “a snow in summer，”saying there has never been a consecutive decline before. The slump in the auto market will intensify competition in the industry， and the pressure is particularly serious for domestic auto brands.
In September， Beijing Hyundai launched its new SUV model Tucson with a price of only 160，000 yuan （$25，157）， which was much lower than expected. The price also pulled down the prices of mid-sized sport utility vehicles in China.
Shortly after， domestic automakers launched their own models. Dongfeng Yulong launched its SUV model Luxgen U6， priced at less than 150，000 yuan （$23，584）. BAIC Motor Corp. Ltd. then launched an independently developed the compact SUV Beijing Auto Senova X25 with a minimum price of only 56，000（$8，805）.
Although Chinese automakers are trying to avoid a price war， most of them are actually cutting prices. Zhu Huarong， President of Chongqing Chang’an Automobile Ltd.， thinks that competition in the domestic auto market has already been “bloody.”
Because of brand， technology and capital restrictions， domestic Chinese auto brands are the first to be affected when the market is in a slump. Domestic automakers have made some progress in recent years， but there are still some unresolved problems.
Overcapacity is still an issue for domestic manufacturers. The SAIC General Motors Corp. Ltd.’s Wuhan location at the beginning of this year added a production capacity of 240，000 automobiles to the company. Shanghai Volkswagen， Ford China and several domestic brands also have new locations manufacturing vehicles.
According to the AlixPartners report， most Japanese， European and American manufacturers are utilizing over 90 percent of their plant’s capacities. Chinese manufacturers utilize less than 60 percent. A plant typically needs to utilize 85 percent of its capacity to have a profitable operation.
Zhu said the immediate result of overcapacity will intensify the price war. For instance， at the Chengdu Motor Show held in early September， almost every pavilion was transformed into a store， and price promotion advertisements were everywhere. Almost every visitor was asked whether they would buy a car. The most important auto show in southwest China was thus changed into a super car sales venue. Under such a price war， only 30 percent of dealers can earn profits. Another problem is the high research and development （R&D） costs and inadequate financial investments. Only 29，000 of each model developed by domestic brands can be sold every year on average， which slows down the development of new models and makes it difficult to recover R&D costs. In contrast， joint ventures and foreign brands can sell 300，000-500，000， or even 1 million of each model every year.
This makes domestic brands R&D investments inadequate. “A big international auto company usually invests 80 billion yuan（$12.58 billion） in R&D， but a Chinese brand only invests 8 billion yuan （$1.26 billion） on average at the maximum，” said Zhu. “We complete one project each year， but they can do 10.”
Low industrial concentration is also a problem. Yin Tongyue， Chairman of Chery Automobile Co. Ltd.， said the auto industry is an industry of scale， but there are too many automakers in China. “Even in foreign markets with fierce competition， many automakers can share some resources. But in China， this is hard to be done， causing a waste of resources，” he said.
The transformation challenge
How can domestic manufacturers， especially domestic brands， overcome such difficulties？
At the Frankfurt Motor Show held on September 17-27， leading officials from Mercedes-Benz， BMW and Volkswagen all said information technology will become the future of the auto industry.
To Chinese automakers， using information technology to transform the traditional manufacturing and the change of sales pattern is both a challenge and an opportunity.
In a research report released in September， Auto.qq.com surveyed 500，000 potential buyers of domestic brand automobiles and analyzed their car buying preferences with their lifestyle and consumer habits. With this data， auto companies can develop precise marketing positions and strategies to increase efficiency and reduce costs.
In the meantime， information technology and new energy vehicles are also transforming auto production. Some Chinese manufacturers， such as BAIC， have made achievements in new energy vehicles and AI vehicles， which may become a new growth point for the auto industry in the future.
Zhu thinks domestic auto brands need to combine the Internet with traditional manufacturing， new energy vehicles and AI vehicles. They must improve the R&D capabilities and investments. They should also better cooperate with each other and focus on improving product quality to attract future buyers.
At the beginning of 2015， the China Association of Automobile Manufacturers（CAAM） predicted China’s automobile sales would grow by 7 percent this year. But the association was not as optimistic at the end of the first half of the year， because statistics showed that auto sales in the first half increased only by 1.43 percent， dropping nearly 7 percentage points compared with the same period in 2014. Thus， the association lowered its yearly growth forecast to 3 percent.
With the release of July’s and August’s lackluster numbers， many industrial insiders now expect to see negative growth in China’s auto market， a rarity. According to the CAAM， auto sales in China declined 7.12 percent and 3 percent year on year， in July and August， respectively.
According to the 2015 China Automotive Outlook recently released by global business advisory firm AlixPartners， China’s auto market is entering a “new normal” this year with low single-digit growth expected， while total annual sales volume may record its first contraction since the 2008 global recession. The report expects auto sales to grow 4.1 percent annually through 2018 then slow to an annual growth rate of 2.9 percent in 2023. This is a marked departure from the past 10 years that saw a compound annual growth rate of 19.3 percent.
“Unless a strong turnaround is logged in the second half of the year， 2015 is likely to be a downbeat year for automakers and dealers since the market were recovered from the 2008 global recession，” AlixPartners Managing Director Lian Hoon Lim said.“Inventories are increasing， sales are slowing and OEMs are starting to reconsider their production strategy—all signs of increasing competition and a much tougher environment.”
As the Chinese economy enters a new normal， the automotive industry is also entering a period of transformation and readjustment， said Qu Guochun， Deputy Director of the Department of Equipment Industry of the Ministry of Industry and Information Technology， at a forum on automotive industry on September 12. The industry will face fiercer competition in the future， and its profitability will be seriously impacted. This year’s profits are significantly lower than before， and conditions may worsen for a longer stretch. Pressure on domestic brands
Bai Qingyuan， Vice General Manager of Dongfeng Yulong Motor Corp.， compares this year’s auto market to “a snow in summer，”saying there has never been a consecutive decline before. The slump in the auto market will intensify competition in the industry， and the pressure is particularly serious for domestic auto brands.
In September， Beijing Hyundai launched its new SUV model Tucson with a price of only 160，000 yuan （$25，157）， which was much lower than expected. The price also pulled down the prices of mid-sized sport utility vehicles in China.
Shortly after， domestic automakers launched their own models. Dongfeng Yulong launched its SUV model Luxgen U6， priced at less than 150，000 yuan （$23，584）. BAIC Motor Corp. Ltd. then launched an independently developed the compact SUV Beijing Auto Senova X25 with a minimum price of only 56，000（$8，805）.
Although Chinese automakers are trying to avoid a price war， most of them are actually cutting prices. Zhu Huarong， President of Chongqing Chang’an Automobile Ltd.， thinks that competition in the domestic auto market has already been “bloody.”
Because of brand， technology and capital restrictions， domestic Chinese auto brands are the first to be affected when the market is in a slump. Domestic automakers have made some progress in recent years， but there are still some unresolved problems.
Overcapacity is still an issue for domestic manufacturers. The SAIC General Motors Corp. Ltd.’s Wuhan location at the beginning of this year added a production capacity of 240，000 automobiles to the company. Shanghai Volkswagen， Ford China and several domestic brands also have new locations manufacturing vehicles.
According to the AlixPartners report， most Japanese， European and American manufacturers are utilizing over 90 percent of their plant’s capacities. Chinese manufacturers utilize less than 60 percent. A plant typically needs to utilize 85 percent of its capacity to have a profitable operation.
Zhu said the immediate result of overcapacity will intensify the price war. For instance， at the Chengdu Motor Show held in early September， almost every pavilion was transformed into a store， and price promotion advertisements were everywhere. Almost every visitor was asked whether they would buy a car. The most important auto show in southwest China was thus changed into a super car sales venue. Under such a price war， only 30 percent of dealers can earn profits. Another problem is the high research and development （R&D） costs and inadequate financial investments. Only 29，000 of each model developed by domestic brands can be sold every year on average， which slows down the development of new models and makes it difficult to recover R&D costs. In contrast， joint ventures and foreign brands can sell 300，000-500，000， or even 1 million of each model every year.
This makes domestic brands R&D investments inadequate. “A big international auto company usually invests 80 billion yuan（$12.58 billion） in R&D， but a Chinese brand only invests 8 billion yuan （$1.26 billion） on average at the maximum，” said Zhu. “We complete one project each year， but they can do 10.”
Low industrial concentration is also a problem. Yin Tongyue， Chairman of Chery Automobile Co. Ltd.， said the auto industry is an industry of scale， but there are too many automakers in China. “Even in foreign markets with fierce competition， many automakers can share some resources. But in China， this is hard to be done， causing a waste of resources，” he said.
The transformation challenge
How can domestic manufacturers， especially domestic brands， overcome such difficulties？
At the Frankfurt Motor Show held on September 17-27， leading officials from Mercedes-Benz， BMW and Volkswagen all said information technology will become the future of the auto industry.
To Chinese automakers， using information technology to transform the traditional manufacturing and the change of sales pattern is both a challenge and an opportunity.
In a research report released in September， Auto.qq.com surveyed 500，000 potential buyers of domestic brand automobiles and analyzed their car buying preferences with their lifestyle and consumer habits. With this data， auto companies can develop precise marketing positions and strategies to increase efficiency and reduce costs.
In the meantime， information technology and new energy vehicles are also transforming auto production. Some Chinese manufacturers， such as BAIC， have made achievements in new energy vehicles and AI vehicles， which may become a new growth point for the auto industry in the future.
Zhu thinks domestic auto brands need to combine the Internet with traditional manufacturing， new energy vehicles and AI vehicles. They must improve the R&D capabilities and investments. They should also better cooperate with each other and focus on improving product quality to attract future buyers.