Chinese auto industry likely to consolidate

It is reported that an official from the National Development and Reform Commission said that China's auto industry, the world's most competitive, will likely consolidate from next year as slowing demand and rising material costs crimp margins.

Mr Cheng Xiaodong head of the vehicle price monitoring arm of the NDRC said that "some weak brands and less competitive players will start to be pushed out next year. Local carmakers with small profit margins will be hit first."

As per report, Chinese carmakers have been forced to slash prices, even as steel costs rise to stand out among the 52 brands on sale, the most in any country. Car sales in Asia's largest auto market have also fallen for the last 2 months as rising fuel prices and a 64% stock market slump curb demand.

Mr Huang Zherui an analyst at CSM Asia in Shanghai said that "In a downturn, only strong players can survive, local carmakers may be hit the most by slowing demand as buyers of their vehicles have less purchasing power than motorists opting for higher end products."

Mr Vivien Chan an, analysts at Sinopac Securities Asia Limited in Hong Kong said that "it will be a painful process for major carmakers like Dongfeng to absorb smaller players, they will have to go that way though, given that it's the direction set by the government."

According to report local brands are being squeezed in China as rising wages enable drivers to buy more expensive overseas models. Cherry Automobile Company, the country's largest carmaker without an international partner, ranked sixth in car sales in the first 9th months, compared with fourth for the whole of last year. The top two spots were taken by Volkswagen AG ventures in both periods.

China's domestic carmakers face more competition as overseas rivals including General Motors Corp and Toyota Motor Corp have boosted investments in the country to offset slowdowns in the US, Europe and Japan. China's car sales doubled in the five years to 2007, and rose 11% to 5.1 million in the first 9th months of this year. In the US, vehicle sales dropped 13% in the first 9th months. European sales sank 4.4%.

Mr Cheng said that the competition may force carmakers to cut prices as much as 3% this year. The country's stockpile of unsold new vehicles stood at a four year high of 170,000 at the end of last month. He said that, Prices fell 2.1% in the first 9th months, Toyota and Mazda Motor Corporation have both made temporary production cuts because of slowing demand.

Consolidation among Chinese carmakers has already begun. SAIC Motor Corporation, the country's largest automaker, took over Nanjing Automobile Group Corp's auto making assets including the MG Car brand last year.