Carmakers catch a cold from China
Production, wages and staff costs face cuts
VOLKSWAGEN (VW) and other major car makers had begun reining in Chinese production, wages and other costs, industry sources said, as executives at the Frankfurt automotive 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, was cancelling staff bonuses and cutting shifts at its plants near Changchun, in north-eastern China, insiders said. The bonuses typically account for more than half of the assembly-line workers’ pay.
Volkswagen and General Motors ( GM) are among the vehicle manufacturers most exposed to the downturn in China. Demand for new vehicles has slowed abruptly as a stock market slump compounds the effects of a cooling economy. Demand is also shifting from foreign to domestic brands.
While China has accounted for more than half of VW’s profit in recent years, GM and its Chinese partners risk being wrong-footed pursuing a $14 billion (R189.6bn) expansion in China. Both have begun trimming local production – by about 5 percent in July – according to a consultant.
“The mood is very depressed at VW, BMW or GM,” said Clemens Wasner of Austrian automotive consultancy EFS, which advises several German car makers in Asia.
Hubert Waltl, the production chief of VW’s high-end Audi brand, said it had also reduced output at its Chinese plants, trimming the workweek to five days from seven in response to lower demand.
The brand’s Chinese facilities were previously “overheated”, Waltl said. Audi chief Rupert Stadler said the company expected “further growth in China... and we will not change our investment plans”.
A GM spokesman said the company’s business model in China was “different” from most of the other multinationals, with large investments in many brands where sales were still rising.
BMW, the largest luxury car maker, warned last month that its forecasts for this year could be at risk from any further deterioration in China’s market, where sales are falling for the first time in a decade.
In Frankfurt, where car makers have built their biggest show stands to display luxury cars with Chinese buyers in mind, car executives played down the extent of the slump and its consequences.
PSA Peugeot Citroën boss Carlos Tavares told BFM Radio on Monday that Peugeot sees “very big growth” in China.
But he added: “As a result of this slowdown there are players who are panicking and cutting prices... which makes it harder to sell vehicles at a fair price and obviously hurts everyone’s business.” – Reuters