Report Says China May Force Auto Industry Consolidation
By Chris Haak
In the early days of the US auto industry, a century ago, there were scores of auto manufacturers in this country. Over time, those small players – the likes of Studebaker, Packard, Nash, Hudson, AMC, and others – folded outright or merged into what eventually came to be known as the Big Three. Of course, we’re referring to GM, Ford, and Chrysler as the “Big Three.” According to the linked Wikipedia article, there were over 1,800 automakers or brands that were sold in the US at one point or other and are no longer available here.
China’s auto industry got off to a far later start than did the US domestic industry, but it’s growing incredibly quickly. And there are many parallels in the Chinese industry’s development to the US industry’s history. Among these is the fact that China has 130 automakers. Over the past several years, there have been a handful of mergers and consolidations among China’s many automakers, but the central government is not satisfied with the pace of that consolidation.
So, given the fact that China’s macroeconomy is centrally-planned, the government is expected to announce plans to force several of its automakers to merge, according to Autocar. Autocar’s report says that China’s Ministry of Industry and Information Technology is creating guidelines that will prohibit car makers from building new plants unless they acquire an existing manufacturer first.
There is a tremendous amount of excess vehicle-production capacity currently in China, but it is also spread among those hundreds of manufacturers. Large, established players building a new facility doesn’t help solve the problem, hence China’s solution.
Of the roughly 13.7 million cars sold in China last year, about 87 percent, or 11.89 million, were produced by the country’s ten largest automakers. That means that the remaining 120 automakers are fighting over 1.81 million additional cars, or roughly 15,083 cars each. The Chinese government has previously stated that it would like to have two or three automakers with production capacity of two million units (or more) each by 2012, and four to five companies with output of more than one million cars each in the same timeframe.
Sounds like they have a pretty far distance to travel in a short time, but it’s amazing what can be done when forced.