In China's auto market, localization plays a vital role in cost cuts and profitability

Shanghai. December 10 (Gasgoo.com) – As carmakers continue to slash their prices, production cost is becoming more and more important for Chinese automakers. As a result, local sourcing of auto parts has become instrumental to reduce production costs and increase profitability.

The localization index (the percentage of locally-made auto parts used in a completely built-up vehicle) for most joint venture automakers in China are averaged at 75 percent, with the highest at over 80 percent and the lowest at over 40 percent, according to a Xinhua News report.

“When the localization index goes up, the production costs will be reduced and the profitability will be improved,” said Rao Da, a senior auto expert from China Association of Automobile Manufacturers.

Winfried Vahland, president of Volkswagen China Group, indicated that Volkswagen has a so called “Olympics Plan” to reduce costs of automobiles produced by its joint ventures in China. Volkswagen said the company could increase its localization index to 80 percent by the end of this year.

Chinese automakers may lose 40 billion yuan ($54.03 B) in profit growth due to repeated car price slashes this year. The total amount of profits with China’s automobile industry could reach 100 billion yuan ($135.09 B) this year, Rao Da said.