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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (756)	9/17/2003 5:06:24 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China's auto boom to hurt Big Three: KPMG Flood of exports seen when domestic demand met Paul Brent Financial Post Wednesday, September 17, 2003 ADVERTISEMENT The headlong rush of the world's major automakers into China will soon result in the manufacture of more cars there than its people can ever buy, creating long-term consequences for the reeling North American auto industry, a KPMG study concludes. China's booming auto industry is expected to build 2.7 million vehicles this year, about 900,000 more than forecast sales. That supply-demand gap is expected to grow to 2.3 million in two years as China builds vehicles at a 4.9-million-a-year clip. Auto assembly overcapacity is already an issue in North America as the Big Three auto companies struggle to close excess plants while foreign competitors build new assembly plants on the continent. China's flood of excess metal could find its way here, although the consulting firm notes the emerging economic giant has not yet turned into an export powerhouse. "People [think] in the North American industry there are capacity issues; everybody is fighting for market share, [so] move to China and your problem is solved," said Doug Dawdy, senior vice-president of KPMG's industrial and automotive consulting practice. "With the increase in capacity, they are really in the same-to-worse situation, just a different marketplace." Led by Germany's Volkswagen AG, General Motors Corp. and Honda Motors Co., foreign automakers have rushed to set up joint ventures in China to take advantage of low labour costs and the prospect of millions of potential vehicle buyers. KPMG expects the surging Chinese automotive sector will hit North American auto-parts producers hardest -- and not have as much of an impact on automakers themselves. That assessment is not shared by Jim Stanford, a Canadian Auto Workers economist who predicts the Chinese overcapacity will swamp North American shores. "I think the long-run threat to the North American auto industry from China is huge. "The Koreans have shown that you can base an entire industry on trans-oceanic exports. That has broken the old traditional view that the auto industry is global, not regional. I am convinced that the Chinese will be next." In Canada, each of the Big Three have closed or plan to close an assembly facility. Germany's DaimlerChrysler AG backed away from a promise to build a new facility to build compact pickup trucks in Windsor this year. DaimlerChrysler, the world's fifth-largest carmaker, is expected to close or sell as many as a third of its U.S. parts factories after winning labour union backing for a plan to narrow losses this week, according to sources. The automaker's tentative contract with its U.S. union, the United Auto Workers, clears the way for shedding as many as seven plants, limiting pay raises and boosting worker health-care costs, the people said. Ford Motor Co. and its Visteon Corp. parts affiliate also has an agreement with the union, although details weren't disclosed. KPMG, which has developed its forecasts based on a poll of 14 large automakers, said the first signs of overcapacity are already appearing in the Chinese market. "Average car prices in China have already fallen by 7% between January and June this year," said Mr. Dawdy. "In addition, rising inventory levels are also forcing price reductions on older models as businesses look to clear stock levels." Mr. Dawdy estimates 10% to 20% of Chinese-made auto parts are exported and the government hopes to raise that figure to as much as 40%. pbrent@nationalpost.com © Copyright 2003 National Post nationalpost.com