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Global Economy Throwing Up Red Flags For Oil

Investors are feeling increasingly gloomy…

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Trade War Weighs On Western Automakers In China

Automotive executives running carmaking joint ventures in China must be asking themselves regarding the current performance situation: is it a downturn in the lower end of the car market or backlash against trade war?

The Financial Times reported Ford’s plants in China operated at only 11 percent of capacity during the first six months of this year, as the firm’s car sales plunged to 27 percent of the same period last year.

Meanwhile, Peugeot owners PSA’s plant in Chang’an produced just 102 cars — yes, you read that right, 102 cars — in the first half of the year, meaning its capacity utilization was below 1 percent. The firm’s other joint venture with Dongfeng Auto ran at just 22 percent of capacity, the article reported, as sales were just 62 percent of the same H1 period last year.


(Click to enlarge)

Source: Financial Times

The collapse in sales comes particularly hard as foreign firms have been making such stellar returns from the China market.

Volkswagen and General Motors’ Chinese sales accounted for 38 percent and 23 percent of the companies’ respective pre-tax profits last year, so losses will be particularly painful. Related: Major Setback For EVs Could Delay Peak Oil Demand

Both firms have fared better than Ford and OSA, though. Volkswagen reported a 6 percent year-on-year sales decline in the first quarter of the year, while sales for GM fell 10 percent. Capacity utilization has so far held up well, staying above the critical 80 percent (the generally accepted break-even line). The Financial Times reported the Shanghai GM joint venture is running at 88 percent capacity, but Volkswagen’s venture with FAW Group achieved only 77 percent in the first half of this year.

(Click to enlarge)


Source: Financial Times

The connection to trade wars comes not just from the probable cause for the collapse in sales, but the disparity among producers.

Japanese carmakers, for example, remain strong. Honda and Toyota are both running extra shifts to maintain better than 100 percent capacity. Premium European brands are doing well, with Daimler’s Beijing Benz joint venture running close to 90 percent capacity while BMW Brilliance is running at 96 percent. If it were just the sale of low-end cars that were suffering, you would expect the Japanese carmakers and Volkswagen to also see a similarly sharp downturn, but they are not.

None of the major carmakers is ready to call time on the massive Chinese car market just yet. At some 23 million cars a year, it remains by far the largest single market, but it is an increasingly challenging market in which to make money.

By Stuart Burns via AG Metal Miner

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Leave a comment
  • Paul G on July 31 2019 said:
    It caught my attention that all the auto plants described in the article are situated in China. When a German car is sold in the US it is made in Germany. Toyotas are made in Japan. But when it is sold in China it seems to be also made in China. Why can't the same German car that is shipped to the US be also shipped to China from Germany? Not really a free trade arrangement to begin with, when you force automakers to manufacture in your country.

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