Don’t say we didn’t warn you: global automakers are reportedly making drastic cutbacks to production in China as the global automobile market continues to slow down significantly, led by China’s plunging sales.
Companies like Hyundai, Ford, Nissan and Mazda are all cutting their output in China by about 20% each. For 2018, new car sales in China are expected to fall for the first time in 28 years. The country's overall plant utilization rate has dropped to just over 60%. According to PWC, China’s vehicle plants saw utilization rates of over 70% five years ago.
Effective this month, Nissan is cutting back at plants in Dalian, Liaoning Province and Zhengzhou, Henan Province. Their plan is to cut back by about 30,000 vehicles per month by suspending production lines and attempting to bring inventory levels lower. Nissan's cuts will last until March.
China is the second largest market for Nissan, making up about 1/4 of its annual global sales. Last year, it sold 1.5 million vehicles in the country and its goal for 2022, as the company stated earlier this year, is to sell 2.6 million units. While Nissan still saw 3.9% growth in annual sales over the first 11 months of this year, that is down from a 12% rise in 2017.
Mazda is looking to make similar cuts until June. Even Japan, whose auto market has held up in recent months – at least comparatively to China – is now starting to feel the effects of the global slowdown.
Ford and General Motors have both seen major slowdowns in China also: Ford vehicle sales through November were down 34% and its plant utilization rate fell below 50%. General Motors' output at a plant that it has in Southern China was down 40% in November.
Korea's Hyundai had already started to slow down output in 2017 and its plant utilization rate is only at about 60% currently.
Even domestic Chinese automakers like China FAW Group and China Changan Automobile Group are reducing output of their own brands.
Toyota and Honda seem to be the two outliers. Neither has plans to cut output, as sales for their key models remain relatively close to on track. Even Volkswagen is showing some signs of strength, having only to cut output by single digit percentages in November as it continues to find strength from its luxury brands.
Regardless, over the course of the long term, China’s total annual production capacity is projected to move to 45 million vehicles in 2025, up from 40 million vehicles at the end of 2019. Automobiles remain China’s largest industry, accounting for about 3% of the country‘s GDP.
Recall that in early December, we reported that the country was seeing its historic sales collapse accelerate. November data confirmed a continuation of the ugly trends that we discussed throughout the year this year. Passenger vehicle wholesales were down 16.1% on the year, according to the China Association of Automobile Manufacturers. This data included sedans, SUVs and crossover utility vehicles.