Standard & Poor's points out that mature market profit margin is only 5%
“Almost all of the world’s leading car manufacturers are trying to be in Asia,
Especially if you want to expand your business in China, because in China's auto industry, you will find that you can get better industry profitability in China. However, in the next few years, the Chinese auto industry will experience market saturation. "The report released by the Standard & Poor's credit rating recently pointed out the potential dangers facing the Chinese auto industry.
Tariff cuts will lead to lower profit margins
“The increase in import quotas and the further reduction in tariffs all put more pressure on the profitability of Chinese domestic producers. In order to fulfill its commitment to the World Trade Organization, China will Before 2006, the auto import tax was reduced from the current 38% to 43% to 25%.†The elimination of quotas means that various changes in the imported vehicle market will begin to appear this year, and it is expected that the price of imported vehicles will be significantly reduced, and It is expected to exceed 10%.
Bai Peiru said that with the cancellation of import quotas, the most direct result is that the competition between domestic and foreign-funded enterprises will become even more intense, resulting in a decline in the industry's average profit margin. The average operating profit margin of domestic automakers in China is about 30% to 35%, compared to 5% in mature markets. And as prices fall, such profit rates may gradually disappear over time. Especially in China, given the rising prices of steel, the raw material costs of automakers are also increasing, which will further undermine profitability.
Domestic automobile production costs 20% higher than Europe and the United States
Standard & Poor's pointed out that the main challenge for automakers in the coming years is how to reduce production costs. However, in this regard, the automotive industry may encounter greater difficulties than it thinks. Due to the high cost of parts and components, the low quality of domestic steel and the lack of economies of scale, the current production costs of the Chinese auto industry are 15 to 20% higher than in Europe and the United States. The high cost and declining prices will be the biggest obstacles facing the Chinese auto industry.
In order to solve this problem, Standard & Poor's pointed out that if Chinese auto companies want to cultivate international competitiveness, mainland automakers must reduce the cost of local parts supply, improve the quality and economies of scale of domestic auto assembly, and develop their own research and development capabilities. .
Overcapacity may force large foreign companies to withdraw their capital
Standard & Poor's credit analyst Bissinger said that although the current production of cars in China can generate a stable profit margin, so global auto manufacturers are rushing to develop business in China, but in the next few years, increasing capacity investment will easily lead to oversupply, and Evolved into price competition.
It is reported that Volkswagen, the world's major automaker, plans to invest EUR 6 billion in the next five years to double the company’s production in the Chinese market to reach its annual production target of 1.6 million vehicles. Chinese domestic companies also invest their funds in automobile production, with a particular focus on cracking down on high-profile competitors. This expanding capacity will gradually saturate China's auto market.
According to data released by the China Association of Automobile Manufacturers, domestic sales of cars in 2003 are still growing at an extremely fast rate, an increase of 75%, reaching a record 1.97 million vehicles. Multinational auto giants are also launching billions of dollars in investment plans at the same pace.
According to Bai Peiru, director of the Standard & Poor's Hong Kong office's corporate and infrastructure rating agency, "With overcapacity and shrinking profits, some large foreign-invested producers may be forced to withdraw their expansion plans in China. Some smaller domestic manufacturers are even more It may face the test of survival. In addition, like many developing markets, China's auto industry will face continued integration in the future, and restructuring of more than 120 automobile assembly plants in China will be inevitable."