Beijing is playing a now-familiar tune: China's auto industry needs to get leaner. The rest of the country isn't listening.
According to J.D. Power, nearly 80 manufacturers compete in the light-vehicle market alone. The central government has long desired some rationalization of this sprawl, and this week, state media reported that the State Council has placed the auto sector atop a list of industries needing consolidation.
It isn't the first time authorities have made such a call. Last year, Beijing unveiled a grand plan to develop a core of auto groups to lead the domestic industry. Since then, there hardly has been an avalanche of activity. The last big deal, Chongqing Changan Automobile's purchase of Hafei Auto and Changhe Auto, was announced in late 2009.
Beijing's logic is clear. A more streamlined sector will enable the larger companies to benefit from economies of scale and increased pricing power, in turn raising profits available for reinvestment. Ultimately, that could help China develop a clutch of world-class car makers.
But it seems this isn't swaying local governments, which house the auto makers. In an expanding market where even small car makers are doing well, they provide employment, a measure of economic growth, and a source of tax revenue to local authorities. The type of consolidation Beijing wants could see some plants slimmed down or closed, with provinces in turn losing those benefits.
The resistance is justified, for now, by China's fast-rising auto sales. Year-to-year growth may be slowing, but auto sales still were up 48% in the first half from a year earlier. Few analysts see anything other than continued expansion of car ownership in China in coming years.
The central planners, then, are in need of a good crisis. A drop in auto sales, which would reveal high levels of industry overcapacity and lead to losses among those too small to operate profitably in an environment of slower growth, would bolster its plans. At the moment, that seems far off.
Beijing may hope its car industry develops like the U.S.'s did in the 20th century, with a core of leading firms emerging from an initial plethora.
But then, that process did take about a century.
