US Auto Industry Suffers While Chinese Auto Industry Prospers

THE US AUTO INDUSTRY

Declining auto sales are decimating the US auto industry. The Wall Street Journal reports about auto dealers feeling strains amid declining sales.

(emphasis mine)

Auto Dealers Feel Strains Amid Declining Sales
By SHARON TERLEP

NEW ORLEANS -- About 1,000 General Motors Corp., Ford Motor Co. and Chrysler LLC auto dealers went out of business last year, a loss deeper than anticipated amid a crippling decline in auto sales.

The rate of decline has been so swift and deep that GM and Chrysler have backed off once-aggressive efforts to strategically downsize their vast dealer networks, sized for a time when Detroit's Big Three commanded more than 75% of the U.S. market.

While many dealers consolidated stores or voluntarily bowed out of the auto business, many left under duress. "You can't explain how depressing it is to drive past an abandoned dealership every day, how it leaves you with an empty feeling," Annette Sykora, chairwoman of the National Automobile Dealer Association said Saturday in a speech at the group's annual convention. "What is happening to the business I grew up in?"

NADA in December predicted about 900 dealerships -- including small numbers of foreign-based auto makers -- would go out of business in 2008.
But Detroit's auto makers alone lost more than that, company executives said this weekend. About 300 Ford dealers closed last year, while 401 GM dealers and 287 Chrysler dealers went out of business. Consulting firm Grant Thornton estimates about 2,500 of the nation's 25,000 new vehicle dealerships will close in 2009. However, 5,000 would need to close to have a healthy level for this year's anticipated level of auto sales, the firm said this week.

On the manufacturing side of the US auto industry, things are looking grim. Birmingham News reports that auto industry suppliers are under pressure in Alabama and elsewhere.

Auto industry suppliers under pressure in Alabama and elsewhere
by Dawn Kent
January 25, 2009 6:56 AM

Auto suppliers around the world are buckling under the pressure of a far-reaching industry crisis, and cracks are starting to show among such companies here in Alabama.

As automakers, including the three operating in the state, slash production levels in response to a global sales slump, there's less need for the seats, steering systems, engine components and other parts that keep nearby supplier plants humming.

Compounding the problem is the fact that many suppliers operate on tighter margins than do auto-assembly plants, meaning lost production time is an even tougher blow.

Last month, layoffs were announced by two Alabama auto suppliers.

Mando Corp. was temporarily laying off 200 workers at its Lee County plant while a General Motors plant it supplies was shut down for a month. Meanwhile, Cullman's Topre America announced 29 layoffs amid slow sales.

Elsewhere, Huntsville's Toyota engine plant continues to scale back production, following three months' of drastically reduced output late last year.

The plant, which employs 900 people, is suspending production of its 4.7-liter V8 engines for 26 days over the next three months and doing the same for its 5.7-liter V8s for six days in February and March. In addition, the plant is halting the assembly of V6 engines for 10 days during the first quarter.

The cuts are part of companywide cutbacks by Toyota. Employees will continue to report to work for nonproduction duties, said plant spokeswoman Stephanie Deemer.

Close to the vest:

Beyond that, it's difficult to determine the effect of the auto industry slump on state suppliers, since many are tight-lipped about their operations.

"A large part of the negative impact is not visible on the surface for everybody to see, because the workers are being furloughed rather than laid off," Deravi said.

As a result, the cuts are not reflected in unemployment claims, but in some cases, workers are taking home a skimpier paycheck.

"The full impact of this recession is being somewhat underplayed at this point," he said.

Outside Alabama, there are additional signs of supplier struggles.

According to reports last week out of Georgia, a manufacturer of car mats and trunk liners has shelved plans to open a facility in Columbus to supply a new Kia auto assembly plant that is under construction in West Point, Ga. The company has been sold, and the decision was made by the new owner.

Also, last week in Detroit, industry leaders warned of a string of collapses among suppliers, unless those companies are able to tap into $700 billion in federal bailout funds, The Detroit News reported.

Hundreds of suppliers could go out of business in the next two months because U.S. auto production virtually has stopped as manufacturers trim inventory, said Linda Hasenfratz, chairwoman of the Original Equipment Suppliers Association.

Hasenfratz, speaking at the Automotive News World Congress, said suppliers' cash reserves are dwindling.

At the same event, Timothy Leuliette, CEO of auto parts maker Dura Automotive Systems, said suppliers are desperately trying to cut costs. Dura has cut 3,500 jobs and laid everyone off for a week this month.

Leuliette said the industry can absorb the loss of a dozen bankrupt suppliers, but not 100.

"We cannot absorb that kind of a fall," he said.

He added that financing is drying up for automotive companies and that banks should start lending money from the bailout cash they received from the government.

In Alabama, there are more than 350 automotive-related manufacturers, and the vast majority of those are suppliers. The auto industry also supports more than 134,000 jobs and a $5.2 billion annual payroll.


THE CHINESE AUTO INDUSTRY

Chinaview reports that new auto tax policy makes low-emission cars popular in Beijing.

New auto tax policy makes low-emission cars popular in Beijing
2009-01-24

BEIJING, Jan. 24 --
The Beijing Asian Games Village auto-market is seeing crowds after the government halved the purchase tax on low-emission vehicles to 5 percent on Tuesday.

Dealers say cars with engines under 1.6 liters now account for 80 percent of those sold, up from 60 percent before the policy was started.

Many customers looking to buy high-emission cars changed their mind with the new policy.

Soundbite: Customer A: "I was planning to buy a big car costing 200,000 yuan. But the new policy and high oil prices made me think differently."

Dealers are taking advantage of the policy by ending big discounts on small cars.

Buyers struggle to knock even 5,000 yuan, or 730 U.S., off the original price.

Soundbite: Customer B: " After the tax on small cars was reduced, the price of small cars rose and dealers started refusing to make big discounts."

Dealers say the policy should help stimulate the auto market by drawing attention to low-emission cars.

On the manufacturing side of the Chine auto industry, things are also looking up. Reuters reports that Brilliance Auto investing $439 mln in China plant.

Brilliance Auto investing $439 mln in China plant
Fang Yan

SHANGHAI, Jan 22 (Reuters) - Brilliance Auto, parent of Brilliance China Automotive Holdings (1114.HK), is investing 3 billion yuan ($439 million) in a new plant in northeast China, banking on policy support to boost sales of small cars.

The manufacturing plant, with designed annual capacity of 150,000 cars with engine sizes of 1.6 litres or smaller, is expected to start operation in June 2010, it said on Thursday.

Brilliance's car venture with BMW (BMWG.DE) is also expanding its workshop floor at a plant, also located in the city of Shenyang, in preparation for the production of new models in the future, a spokesman with the venture told Reuters.

He had no specific information on the scale of the expansion project or the new car models to be made at the plant, which currently produces up to 41,000 BMW 3 series and 5 series sedans annually.

Car sales growth in China, the world's second-largest auto market, slowed to a single-digit rate in 2008 for the first time in at least 10 years as consumption waned with a slowing economy.

As a result, General Motors (GM.N) and many other automakers have braked aggressive expansions this year after reporting much slower China car sales in 2008.

In the next couple of years, the U.S. automaker will not add new vehicle manufacturing facilities in the country, where its total capacity is at about 1 million units, its Asia president Nick Reilly told Reuters in December.

To help lure buyers back into showrooms, Beijing recently unveiled a raft of policies, including halving the auto purchase tax for cars with engine sizes below 1.6 litres.

POLICY SUPPORT

Brilliance Auto has laid out an ambitious target to more than triple its vehicle sales to 1 million by 2012, up from 300,000 in 2007, its chairman Qi Yumin told Reuters in April 2008.

The new car project will help the automaker realize its mid-term target of selling 500,000 vehicles in 2010, Qi said in a statement.

Other potential beneficiaries of Beijing's stimulus policy package, which also includes generous subsidies to owners who trade their high-emission farm vehicles for more fuel-efficient and clean ones, are also bullish on market prospects for 2009.

Pick-up truck and sport utility vehicle maker Great Wall Motor Co (2333.HK) aims for a nearly 70 percent jump in vehicle sales this year, a company executive told Reuters on Wednesday.

Geely Automobile Holdings Ltd (0175.HK), which makes mostly compact cars, said earlier this month it aimed for a 25 percent rise in car sales this year.

Brilliance, which is selling in more than 60 countries, mostly in emerging markets, is among a very small club of Chinese automakers that have started tapping mature markets in Europe.

The firm made headlines in Europe in 2007 when it received a rating of just one star out of five in a crash test for its BS6 sedan by Germany's ADAC auto club.

A subsequent crash test showed results that would correspond to three stars under the official test after it improved the car's safety standards.

Brilliance's self-developed BS6 and BS4 sedans are now available in Germany through HSA Motors Europe, the firm's importer for Europe, a Brilliance spokeswoman told Reuters. (Reporting by Fang Yan, Editing by Jacqueline Wong)

My reaction: The comparison between the US auto industry and Chinese auto industry offers a stark contrast:

US auto industry:

  • About 1,000 GM, Ford, and Chrysler auto dealers went out of business last year, and about 2,500 more dealerships are expected to close in 2009.
  • Manufacturers are shelving plans to open new facilities.
  • Hundreds of suppliers are on the verge of going out of business in the next two months because US auto production has virtually stopped.

Chinese auto industry:

  • Dealerships have stopped offering discounts on 80% of their sales because of strong demand.
  • Manufacturers are investing in new plants and expanding workshop floors.
  • All Chinese auto makers are predicting growth for 2009, with some aiming for 70 percent jump in vehicle sales.

Conclusion: It doesn' t look like the “hard landing” is going to be in China…

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