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CAIXINMEDIA

Why China's Car Industry Is Crashing On Its Own Turf

Daredevil Xie Yujun leaps over the frozen Heilongjiang River in a stunt car in Heihe, in China
Daredevil Xie Yujun leaps over the frozen Heilongjiang River in a stunt car in Heihe, in China
Zhu Shiyun

BEIJING — It is not exaggerating to describe China's automobile market as rolling into its "Golden Age."

According to the China Association of Automobile Manufacturers' latest data, from January to April this year the passenger car market grew by 10% to 6.48 million cars. In comparison, for the first quarter of this year, the U.S. car market had a growth rate of 1.4%.

During the same period, China's imported car market grew more than 20%. Joint-venture brands also registered a strong growth. While the joint venture of Chinese auto group FAW and Germany's Volkswagen sold more than 920,000 cars, a growth of 17.5% compared with the same period last year, General Motors sold 1.2 million cars with a growth of 11%.

But in this context, we must also note that sales of China’s own brands haven't stopped bleeding. After three consecutive years of decline, Chinese brands' market share has now plunged to 38% overall. Thus while China's automobile market has finally and fully matured, China’s indigenous manufacturers are facing a grim outlook.

Causes

We believe the challenges that face China's own brands are two-fold, the intensifying external competition and the failure to make the necessary internal adjustments.

Independent Chinese-brand cars are being squeezed from both joint-venture manufactured cars and imported cars, first in the product lineup, second in cost.

In the compact car market, the most competitive of all, the joint-ventures are accelerating their pace. The multinational brands have a competitive advantage in both storage and distribution processes, by being able to sell the same model of car made by different Chinese joint-venture partnerships.

The best example are the various models launched by FAW-Volkswagen. These siblings born out of the same platform are at the top of the sales chart all year around. Toyota is following suit by separately offering both the American and European versions of its best-selling Corolla model to different Chinese joint venture vendors to sell.

In addition, both FAW-Volkswagen and Nissan have launched one after the other their "affordable car" series priced around 50,000 RMB ($8,010). The low-end car market is where Chinese own brands had originally staked out their territory. It remains to be seen whether the invasion of China by the global auto industry leaders will lead to a development of the domestic market or be a fatal blow for local brands.

Thanks to their greater scale and leading technology, joint-ventures can use their cost advantage to further squeeze out competitors. By manufacturing a series of models of the same class of cars using the same platform, these cars can share a high proportion of the same parts and components and thus further reduce their cost. At the same time, because of their wider sales numbers, often over a million vehicles annually, joint-venture companies possess the mean to grow further into the Chinese market.

Chang'an Zhixing SC6378, aka "Chana Star" — Photo: Ken Marshall

Too little, too late?

In comparison, most of China's local brands do not have a sufficient cost advantage to keep up with the price-reduction trend of the market. Take the best-performing Changan Automobile as an example. The company estimates it will sell 600,000 cars this year. If the joint-venture brands dip further in price it's difficult to predict how much margin the local brands have. As Dong Yang, secretary general of China Association of Automobile Manufacturers, pointed out, just one-fifth of Chinese-only brands have steady profitability, another one-fifth make a small profit and the rest are losing money.

In addition, local brands also face the double dilemma of upgrading and time pressure.

In recent years many local car makers have chosen to breakthrough by producing premium cars with higher profit margins. However the path is tough. For instance, Great Wall Hover's H8 model was forced to postpone its launch twice due to component integration problems; also Changan Automobile suspended altogether its high-end plan to focus on developing its parent brand and its R&D.

Is it too late for local carmakers to turn it around? Many of them have realized the problem and have started to transform themselves over the past two or three years ago. Several companies such as Chery and Geely have all changed their multi-branding strategy to "unification" instead. They are also trying to raise their technological level through acquisitions, fundraising and building their own auto research centers, as well as relying on international teams.

Then, there are also the uncertainties that will come as many of China's cities are tightening vehicle purchase and license restrictions. Coupled that with the overall updgrading of competition from international brands, China's automakers don't have much time to save themselves.


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Society

Shakira, Miley Cyrus And The Double Standards Of Infidelity

Society judges men and women very differently in situations of adultery and cheating, and in divorce settlements. It just takes some high-profile cases to make that clear.

Photo of Bizarrap and Shakira for their song “Shakira: Bzrp Music Sessions, Vol. 53”
Mariana Rolandi

-Analysis-

BUENOS AIRES — When Shakira, the Colombian pop diva, divorced her soccer star husband Gerard Piqué in 2022, she wrote a song to overcome the hurt and humiliation of the separation from Piqué, who had been cheating on her.

The song, which was made in collaboration with Argentine DJ Bizarrap and broke streaming records, was a "healthy way of channeling my emotions," Shakira said. She has described it as a "hymn for many women."

A day after its launch, Miley Cyrus followed suit with her own song on her husband's suspected affairs. Celebrities and influencers must have taken note here in Argentina: Sofía Aldrey, a makeup artist, posted screenshots of messages her former boyfriend had sent other women while they were a couple.

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