Carmakers
curb China output as sales growth stalls
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[September 15, 2015]
By Andreas Cremer and Norihiko
Shirouzu
FRANKFURT/BEIJING (Reuters) - Volkswagen
and other major carmakers have begun reining in Chinese output, wages
and other costs, industry sources told Reuters, as executives at the
Frankfurt auto show put a brave face on a sharp slowdown in the world's
biggest vehicle market.
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The German car giant's Chinese joint venture, FAW-VW, is cancelling
staff bonuses and cutting shifts at its plants near Changchun,
northeastern China, people with knowledge of the matter said. The
bonuses being scrapped typically account for more than half of the
assembly-line workers' take-home pay.
Volkswagen's high-end Audi brand also said it had cut
output at its Chinese plants, trimming the working week to five days
from seven in response to lower demand for models such as the A6
saloon.
And German rival BMW said on Tuesday it had reduced output
of its locally produced 3 and 5 series models. "We reacted
relatively fast," Chief Financial Officer Friedrich Eichiner told
journalists. "We are not stockpiling."
Car sales in China, until recently the profit engine for automakers
around the world, have been hit by a cooling economy and a plunging
stock market. Demand was flat in the first eight months of the year
and could drop in 2015 for the first time since the market took off
in the late 1990s.
At the opening day of the Frankfurt auto show on Tuesday, industry
executives expressed confidence about the long-term growth potential
of the Chinese market, and said any short-term hit could be offset
by a strengthening recovery in Europe.
Industry data showed European car sales jumped 11.5 percent
year-on-year in August.
But some analysts said the Chinese slowdown was coming at a time
when carmakers are still opening factories in the country --
creating an excess of capacity that could weigh on profits.
Leading research group IHS Automotive expects carmakers' capacity
utilization rates in China to drop to 65 percent from last year's 70
percent, a key profitability threshold.
"VERY DEPRESSED"
"The mood is very depressed at VW, BMW or GM," said Clemens Wasner
of Austrian automotive consultancy EFS, which advises several German
carmakers in Asia.
China has accounted for more than half of VW's profit in recent
years and about 40 percent at GM, which is pursuing a $14 billion
expansion in China with its Chinese partners.
Both VW and GM have already begun trimming local production -- by
around 5 percent in July -- according to one China-based consultant.
A GM spokesman said the company's business model in China was
"fundamentally different" from most of the other major
multinationals, with large investments in a wide array of brands
including local ones in segments where sales were still rising.
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GM China chief Matt Tsien said in May that GM was determined to keep
operating margins as high as 9-10 percent by selling more SUVs and
higher-end cars. It ruled out a significant review of its China
plans as recently as July. The U.S. automaker could nonetheless put
the brakes on planned capacity increases, a person close to the
company said, and has room to trim costs at existing facilities by
halting production for longer breaks, reducing shifts and cutting
workers' bonuses. "They can immediately reduce extra months of
salary payments which are very common in the good times," the source
said.
VW CEO Martin Winterkorn told Reuters TV in Frankfurt he remained
upbeat about prospects in China, but noted a shift in demand there.
"The eastern part of China is rather stagnating, while the west is
growing," he said. "Many people live in the west and we just built a
factory there. We are looking to China with confidence and expect to
keep growing."
Audi chief Rupert Stadler, meanwhile, told Reuters TV the brand
expected "further growth in China over the medium term ... and will
not change our investment plans."
BMW, the world's biggest luxury carmaker, warned last month its
forecasts for this year could be at risk from any further
deterioration in the Chinese market, where its sales are falling for
the first time in a decade.
Eichiner said on Tuesday he saw no reason for BMW to change its
full-year targets, though it was too early to talk of a recovery in
Chinese demand.
PSA Peugeot Citroen's <PEUP.PA> premium DS brand said it was helping
its Chinese dealers to refinance and expected to fall short of its
full-year sales network expansion target.
(Editing by Keith Weir)
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