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No Beijing Bailout for Chinese Automakers

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Posted 25 November 2008 - 02:58 PM


    White Lightning

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No Beijing Bailout for Chinese Automakers
With China's economy cooling, sales growth is way down at the country's
100-plus carmakers. But the government shows no sign of intervening
By Chi-Chu Tschang

Chinese automaker Geely reported sales for October dropped 7.4% from last

As China's economy boomed during the past few years, dozens of Chinese
companies jumped into the car business, setting up factories to produce
autos for the growing middle class. Thanks to those new automakers, many
of them backed by local governments, today there are more than 100
Chinese auto manufacturers with a combined production capacity of over
9.6 million vehicles, according to Changjiang Securities. Problem is,
Chinese purchased only 8.8 million vehicles last year, according to
official figures.

Now, with the global credit crisis cooling China's economy, demand for
cars is growing even weaker. Growth in auto sales is expected to be just
5% this year, compared with 22% in 2007, estimates the China Passenger
Car Assn. On Nov. 11, Geely reported sales for October had dropped 7.4%
from last year. Last month, SAIC Motor reported quarterly profits dropped
78%, to $38 million; the Shanghai automaker's stock price has dropped 78%
this year, compared with a 62% fall in the Shanghai stock index.

With sales in the doldrums and investors shunning their stocks, some of
the leading Chinese automakers are taking a page from General Motors
(GM), Ford (F), and Chrysler's handbook and calling for China's
government to support the auto industry. However, talk of a bailout seems
to be wishful thinking. Beijing failed to include any measures to help
the industry in the $586 billion stimulus package announced earlier this
month. And most of the largest automakers in China, including Dongfeng
Automobile, SAIC Motor, and Tianjin FAW Xiali Automobile, are still

No Life Preservers
That's why the government seems to be taking a hands-off approach. It's
not providing assistance to the country's automakers, but it's not
forcing a much needed consolidation, either. "It's not like in the U.S.
where they are going to get a lot of help with their business," says
Henry Li, head of exports at BYD Auto in Shenzhen, which has halved its
2008 export target to 10,000 vehicles in light of the crisis. "The
government does not provide financial support. The only thing they can do
is help organize fairs to increase domestic consumption."

With an eye on long-term sustainability, Beijing is encouraging the auto
industry to develop more fuel-efficient cars. For instance, in September
the government raised the consumption tax on luxury cars, which had been
20%, to 40%. Chen Jianguo, deputy head of the industrial coordination
department at the National Development & Reform Commission, said earlier
this month that the government was considering slashing the sales tax,
which accounts for one-tenth of a car's price, on alternative-energy
vehicles to boost demand. Beijing is also likely to levy a gas tax,
offsetting a possible fall in gasoline prices, in a step toward allowing
the market to set prices instead of the state.