Overcapacity casts shadow on world's largest auto market

Chinese automaker Geely saw its 2014 sales drop 22.5 percent from the previous year. Domestic companies are urged to be cautious of expansion due to the lackluster market performance. Pan kanjun / For China Daily

With 'wildfire' growth over, many production lines idle

Overcapacity is proving to be a headache for automakers in China as sales slow in the world's largest auto market, said analysts and industry insiders.

Though 23.5 million vehicles were sold in the country last year and the Chinese Association of Automobile Manufacturers estimates the figure will grow 7 percent to around 25 million units this year, at least one-third of the country's auto assembly lines will remain idle.

CAAM estimates automakers in China will have the combined capacity to produce about 400 million vehicles this year.

Industry insiders said it sounds a warning because the break-even point in the industry is about 75 percent utilized capacity.

Things will not change for the better in years to come, according to consulting firm IHS Automotive. It predicts industry-wide capacity utilization will stay around 67 percent through 2020.

The auto industry in the United States is trending in the opposite direction. The utilization rate was 69 percent in 2010, but it is forecast to hit 95 percent next year and stay above 90 percent through 2020.

Analysts said soaring growth in the Chinese market in years past led almost all automakers in the country to aggressively build new manufacturing facilities.

More capacity

Annual production capacity at Shanghai Volkswagen will exceed 2 million units when its new Changsha plant starts operation later this year.

FAW-Volkswagen's capacity will soon grow to about 2 million units with completion of its Foshan plant in South China's Guangdong province now under construction, according to Chinese media.

The two joint ventures have 28 plants that manufacture both components and vehicles in the country.

Shanghai GM will have an annual capacity of 1.86 million units in 2015 now that its Wuhan plant is in operation.

Its sales goal is 2 million units for 2015. The joint venture sold 1.76 million vehicles last year, a rise of nearly 12 percent from 2013.

GM China President Matt Tsien told autonews.com that he believes the investment in new plants is "well-placed" in view of the automaker's potential and continued growth of the China market.