Can Chinese carmakers weather the winter chill?

Shanghai, September 17 (Gasgoo.com) The sales of passenger vehicles in China have dropped for five straight months, and in this late summer all Chinese automaker have felt the cold spells affecting the auto market. With the auto sales peak in March far behind, the ordeal for China's auto industry has just begun. All automakers are wondering how to weather the more severe winter this year.

In April this year, China's auto market began to grow slower and since then it has been the dream of most carmakers to see four-figure monthly sales of their vehicles. While auto prices are rising globally, China's car market has a growing trend of price reduction, mainly due to the surge in prices of steel, plastic and oil.

The cold spells are casting a shadow on the "golden September" and "silver October" -- traditionally two peak months for car sales in China. Mid- to high-end cars have their prices marked down, followed by low-emission vehicles. Only "luxury" cars have to sell at a higher price to meet the pressure from the recently raised sales tax.

An industry association has admitted that its earlier forecast of China's 10 million-vehicle sales in 2008 is unlikely to be fulfilled when the buying power of Chinese customers is undermined by the slowing down economy and plunging stock market. The auto market slump can give China's automakers an opportunity to adjust their corporate strategies: Should they expand their markets further or focus on sharpening their brand competitiveness?

In fact, some automakers in China started their strategic adjustment as early as one year ago. Chery Auto, Brilliance Auto and Geely Auto forced themselves to diversify their products and sales. Similarly, many joint ventures have also adjusted their sales targets for this year as well as vehicle prices.

The price war is likely to become "touch and go" as a theme of the Chinese auto market in the remaining few months this year. What depresses the Chinese carmakers more is the mounting cost pressure and the fluctuating oil prices. These companies have to get their greatcoats ready and tighten their belt ahead of weathering the winter chill.

Many Chinese carmakers are beginning to operate in financially straitened circumstances. Their profit margins are shrinking, their vehicle inventories have to be emptied out by the year end, earnings from their sales must collected and price margins should be reserved for the coming year's sales promotion. But all these will be hard to achieve if the customers continue to play a waiting game.

Nowadays, the cold winter of China's auto industry is looming large and is generating a harsh undercurrent of "survival of the fittest" among the carmakers, who have to rely on their technologies, funding, and services for weathering the winter chill. To boost the consumer confidence may as well be another way to cut the coming winter short.