Chinese Government Now Fretting about Auto Industry…”Commercial Vehicle Overcapacity at Catastrophic Levels.”
by Wolf Richter
WolfStreet.com
May 13, 2016
Overcapacity weakened the US auto industry before the Financial Crisis, and destroyed it during the crisis, with two of the Big Three automakers, some of the biggest component makers, and numerous smaller component makers going bankrupt. It was during the bankruptcy process that the industry restructured, laid of hundreds of thousands of people, shuttered and shed plants, mauled creditors, destroyed stockholders, and finally got rid of overcapacity.
Overcapacity is devastating to the industry, employees, investors, and creditors. But it feels good on the way up.
And now the Chinese auto industry has that problem. The automakers active in China, including all global brands, have had no patience with doubters, and announcements of new assembly plants being built in different parts of China became a near weekly ritual.
China went from automotive backwater to the largest auto market in the world, blowing past the US in the process, within a decade. Last year, 24.6 million vehicles were sold in China, and no one was going to stop this blistering rate of growth, not even the slowing economy.
The industry has become a huge contributor to the Chinese economy, not only in manufacturing, but also investment (building and equipping plants, dealerships, distribution infrastructure, etc.), services such as finance and insurance, transportation (hauling 24.6 million vehicles across China), etc. It’s for this reason that the industry is sacred.
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