Car makers put brake on China output

Volkswagen and other major car makers have begun reining in Chinese output, wages and other costs, as executives at the Frankfurt auto show put a brave face on a sharp slowdown in the world’s biggest vehicle market.

The German car giant’s Chinese joint venture Faw-vw is cancelling staff bonuses and cutting shifts at its plants near Changchun, north-eastern China.

The bonuses being scrapped typically account for more than half of the assembly-line workers’ pay.

Volkswagen’s Audi brand also said it had cut output at its Chinese plants, trimming the working week to five days from seven in response to lower demand for models such as the A6 saloon.

And German rival BMW said yesterday it had reduced output of its locally produced 3 and 5 series models.

“We reacted relatively fast,” chief financial officer Friedrich Eichiner told journalists. “We are not stockpiling.”

Car sales in China, until recently the profit engine for car makers globally, have been hit by a cooling economy and a plunging stockmarket.

Demand was flat in the first eight months of the year and could drop in 2015 for the first time since the market took off in the late 1990s.

At day one of the Frankfurt car show yesterday, executives said they were expressed confident about the long-term growth potential of the Chinese market, and said any short-term hit could be offset by a strengthening recovery in Europe.

Industry data showed European car sales jumped 11.5% year-on-year in August.

But some analysts said the Chinese slowdown was coming at a time when car makers are still opening factories in the country creating an excess of capacity that could weigh on profits.

Leading research group IHS Automotive expects carmakers’ capacity utilisation rates in China to drop to 65% from last year’s 70%, a key profitability threshold.

“The mood is very depressed at VW, BMW or GM”, said Clemens Wasner of Austrian consultancy EFS, which advises several German carmakers in Asia.

China has accounted for more than half of VW’s profit in recent years and about 40% at GM, which is pursuing a $14bn (€12.35bn) expansion in China with its Chinese partners.

VW and GM have already begun trimming local production by around 5% in July according to a China-based consultant.

A GM spokesman said the company’s business model in China was “fundamentally different” from most of the other major multinationals, with large investments in a wide array of brands including local ones in segments where sales were still rising.

GM China chief Matt Tsien said in May that GM was determined to keep operating margins as high as 9-10% by selling more SUVs and higher-end cars.