Profitability "Slimming" The Automotive Industry Enters Structural Growth

In the past year, the bankruptcy incidents in the international vehicle and parts industry have occurred frequently, and Chinese auto companies on the high-speed track appear to be far from this predicament. In 2008, facing the rising pressure of raw materials, the international auto giants have lowered their growth expectations or profit expectations, and can the Chinese auto industry remain alone? Will the bankruptcy nightmare extend from the other side of the ocean to the mainland?
After interviews with a number of domestic auto companies, parts and components companies, distributors, and automotive consulting companies, the reporter found that the attitudes of various companies were severely divided. The Toyota and Ford joint ventures whose performance has skyrocketed are considered to have little impact; the poorly-operated downstream parts companies and small car companies are somewhat worried.

Qian Pingfan, director of the research department of the Industrial Economics Research Department of the Development Research Center of the State Council, pointed out that Chinese auto companies will enter into structural growth with comprehensive growth. In this structural growth trend, the story of small car companies going bankrupt will be staged. Since China's auto production license is still a scarce resource, many auto companies will be acquired before they go bankrupt.

In 2007, the Chinese auto industry ignored the dilemma of its counterparts on the other side of the ocean: It continues to grow at a high rate and remains profitable. In 2008, the trend seems to be shifting quietly, and profit pressure has begun to pass from auto dealers and auto parts suppliers to auto manufacturers.

“In the future, the Chinese auto industry will be transformed from a comprehensive growth to a structural one. In the context of the growth of total auto sales, some auto companies have sales growth above average and some sales are lower than the average, some even There is a negative growth.” Qian Pingfan, director of the Research Department of the Industrial Economics Research Department of the Development Research Center of the State Council, told the Shanghai Securities News: “The situation that most Chinese auto companies have had a better life will no longer exist.”

Industry profits or will "downsizing"

The sustained high growth of the Chinese auto industry will usher in a profitable "slimming" period!

In 2007, China's auto industry key companies (groups) achieved a record high profit in five years: the cumulative total profit realized was 61.007 billion yuan, a year-on-year increase of 65.14%. Behind the high growth, clouds have begun to gather.

In an interview with reporters, Zhang Xiaoyu, vice chairman of the China Federation of Machinery Industry and president of the China Association of Automotive Engineers, stated that “the current operating pressure is relatively large and everyone is blasphemy.”

Two statistics from the China Association of Automobile Manufacturers reflect the dark clouds in the boom: increase in accounts receivable and increase in funds for finished goods inventory: At the end of 2007, the net amount of accounts receivable for key enterprises (groups) of the automobile industry was 472.04. Billion yuan, an increase of 22.29% year-on-year; inventory of finished goods was 47.365 billion yuan, an increase of 26.22% year-on-year, and an increase of capital of 9.839 billion yuan, an increase of 18.15 percentage points from the first half.

While most vehicle companies celebrate profitable growth, several companies cannot be happy. Statistics from the China Association of Automobile Manufacturers show that although South East and Hafei are profitable, their profits have fallen 3.84% and 75.29% year-on-year, respectively; Changhe has continued to lose money and the loss has increased.

At this time, car companies that are located in the downstream of the automotive industry chain or have low added value are deeply affected by the chill.

The reporter was informed that although Nanjing Automobile Group reversed the accumulated losses in the previous November, it achieved full-year profitability. However, its subsidiary car company, Nanjing Fiat, suffered serious losses. Due to years of losses, the Chinese and foreign joint ventures have divided their hands. Since September 2007, Nanjing Fiat's distributors have suffered greatly: there is no new car supply, no sales promotion fees, and Nuoda's dealership fees have also been reduced. As usual, we can't enter but only lose money. Therefore, at the Fiat Business Annual Conference held in February, many Nanjing Fiat dealers spewed hard.

After interviewing a number of domestic vehicle dealers, the reporter found that it is not the Nanjing Fiat dealer who has suffered large losses. Some unsatisfactory sales of domestic and joint-venture vehicle brands have also experienced a difficult situation for most dealers.

Distributors in the parts and accessories industry are seeing huge drops in profit margins.

“Tire dealers are also hard to make money, especially the gross profit rate of the first-tier wholesalers has dropped drastically, from 3% to 6%.” Shen Huixing, general manager of Shanghai Quyang Tire Co., Ltd., told reporters, “The gross margin was higher than it is now in 1995. More, there is about 15%."

Prior to the rapid reaction of Chinese auto makers, Japanese auto companies were also highly sensitive to the "water temperature" of the Chinese auto market.

Recently, Japan's Mitsubishi Motors, Honda Motors, and Nissan Motors all expect earnings to decline in 2009. Honda's performance in overseas markets has always been more eye-catching. Why is it worried about the future? It is understood that the most worried about these Japanese auto companies is not the economic recession of the United States, but the yen exchange rate and the Chinese auto market. At present, China has become the most profitable source of profits for Japanese auto companies and even global auto giants. Once China's auto demand quickly falls back due to economic factors or other factors, the parts supply system and sales network that Japanese auto companies have vigorously laid in China will suffer heavy losses.

“If the situation is as expected by these Japanese companies, then the rapid growth of the Chinese auto industry’s earnings this time may come to an end.” Zheng Gang, researcher at Shanghai Branch of Sinotrust International Information (Beijing) Co., Ltd., said, “The next step will be the overall profitability and even The slimming period of net profit."

Car companies attacked on all sides

Many auto companies and analysts have pointed to increasingly poor living conditions: rising raw material costs and severe foreign trade environment. Chinese auto companies have been attacked on almost all sides.

Zeng Qinghong, general manager of Guangzhou Automobile Group, said that the raw materials are rising, but the car prices can not rise.

Taking a car as an example, its non-metal materials account for about 6% to 9%, rubber (including) tires account for about 8%, glass accounts for about 3%, and steel products account for about 60% of its weight. These raw materials are in the rising cycle.

Recently, the production of automotive steel plate companies headed by Baosteel has raised more than 500 yuan per ton. Domestic companies that produce economic vehicles are nervously discussing how to digest this cost pressure.

When interviewing Michelin Chinese executives, he also admitted that “As the price of rubber and other raw materials continues to rise, Michelin has increased tire prices in North America and Europe.” It is understood that the price of heavy-duty tires sold in Europe on Michelin rose 3.9%. Prices for the United Kingdom and the CIS countries rose by 7% and 6% respectively.

Although Michelin’s senior Chinese officials did not reveal whether it would increase China’s selling price, under the background of rising raw materials, the price increase will eventually take place in China. It is only a matter of time before or after the increase.

In addition, changes in exchange rates and adjustments to export tax rebates have also increased the burden on Chinese auto companies.

According to the Shandong Provincial Electromechanical Products Import and Export Office, the Qingqi Group incurred a loss of 14 million yuan in 2007 due to the appreciation of the renminbi, and the loss caused by the export tax rebate was 18 million yuan.

Another profit killer is a bad trade dispute.

In 2007, the growth of domestic sales of some Chinese auto companies was much lower than their international sales. Most of these Chinese auto companies are exported to Russia, the Middle East, Southeast Asia and other countries and regions, and have enjoyed some preferential local tax policies. However, as Russia adjusts related automobile industry policies, the overseas profits of Chinese auto companies will be greatly reduced.

This summer, the U.S. Department of Commerce will finalize the final ruling on the dumping and subsidy of non-road construction tires in China. At present, it has initially imposed a dumping on Chinese tires and will be subject to punitive tariffs. The average tariff rate is 24.75%. In an interview with the reporter, the staff of the Double Money Tire said that the final ruling may be higher than the preliminary ruling, and the tariff rate may reach 30%. If so, the export profits of these tire companies will be greatly reduced.

Weak Fate: Bankruptcy vs Acquired

Qian Pingfan, director of the Research Department of the Department of Industrial Economics at the Development Research Center of the State Council, believes that “Chinese auto companies will enter structural growth with comprehensive growth.”

As it is said, in this round of rising tide of raw materials, there are still companies that stand out.

“Jiangling Motors is basically unaffected.” Ye Mingxin, deputy general manager of Jiangling Motors Sales Co., told the reporter, “Since 2006, the prices of raw materials and other factors have continued to rise. This pressure has long existed. If one thing is already There have been many occurrences, and for some time, you haven't even thought of countermeasures, so now it will be harder to cope. Jiangling Motors is already ready to deal with it."

It is reported that Jiangling Motors not only carried out major reforms on the sales network, but also spent three years and invested RMB 1 billion in research and development to create a new era of transit. In 2007, Jiangling Ford Transit sold 26,580 vehicles, which accounted for 15.9% of the total light passenger vehicle market share, and once again became China's high-end light passenger sales champion. These high-end products also bring higher profitability to Jiangling Motors.

Zhang Xiaoxuan also believes that the adjustment is beneficial to the main enterprises, that is, enterprises that have formed scale and competitive advantages; these main enterprises should be able to weather this difficult time.

But what about companies that are going to lose money or struggle? Will there be a second Beijing second car factory?

In February, the Beijing No. 1 Intermediate People's Court announced that the bankruptcy procedures for the Beijing No. 2 Auto Manufacturing Plant had been formally terminated and that the company’s unliquidated claims would not be repaid in the future. According to the report, there are 84 bankruptcy creditors in Beijing No. 2 Automobile Manufacturing Plant. The total amount of claims is more than 130 million yuan, and the liquidation rate is only 19.9518%, and only 26.31 million yuan is paid off. At this point, this company that once created a precedent for domestic light vehicles has completely disappeared from the territory of the Chinese automobile industry.

“The Chinese auto industry, especially vehicle manufacturers, may take another route, that is, the road to merger.” Qian Pingfan pointed out: “In the future, there will be more bankruptcies for small companies, but companies with auto production qualifications will be merged before bankruptcy. Because automotive qualification is a directory management system, it is still a scarce resource, and from a large background, Chinese cars are still in a period of great development. If they are restructured, resources can be fully utilized."

In the view of Qian Pingfan, through the merger and reorganization before bankruptcy, the overall resource utilization rate and even competitiveness of the Chinese auto industry is the only way for marketization. The United States had 3,000 auto companies in the 1820s and now there are only 10. The reorganization of South Korea is what it has foreseen.

At the end of April 2007, the honest scholar stated in his report to the Nanjing Automobile Group: “You want to hear the truth or listen to lies. If you listen to the truth, I think that you have no way to go and become SAIC Group. Part of that is your only way out,” said Wang Haoliang, chairman of the Nanjing Automobile Group, when he invited Qian Fanfan to have a meal. “You said our minds. This is a reality that we dare not face.”

Following the Shangnan merger and acquisition, the Dongfeng Motor Group's intention to acquire Hafei Automobile and Changhe Automobile once again fulfilled the "mergers walk before bankruptcy."

While two of China's top three automotive groups are actively involved in mergers and acquisitions, Xu Liuping, president of Changan Automobile Group, the fourth-largest automotive group in China, said that if there are better opportunities, Changan Automobile Group will also conduct some mergers and acquisitions reorganization activities. However, it is more important to strengthen one's own constitution. Otherwise, it may be indigestion after the merger.