Note the last two paragraphs:
Source: NY Times.com
November 19, 2008
" Facing a Slowdown, China’s Auto Industry Presses for a Bailout From Beijing "
By KEITH BRADSHER
GUANGZHOU, China — Do Chinese automakers need a bailout?
China’s car industry is quietly pressing Beijing for government help as it copes with a jarring slowdown, top Chinese auto executives said in interviews here on Tuesday.
This autumn, after six years of 20 percent or more annual growth, vehicle sales were flat or slightly negative, a shock to an industry that has borrowed heavily to build ever more factories for a market that had once seemed insatiable.
Citing the $25 billion in loans that Congress has already approved to help American automakers increase green research, and the additional $25 billion in loans the American industry is seeking this week to cope with a hobbled economy, Chinese executives are now telling the government here that they also need emergency measures. They are seeking lower taxes on new cars, lower fuel prices and increased grants for research into hybrid cars and new technology.
“The Chinese government will undoubtedly support us,” said She Cairong, the general manager of JAC Motors, adding that state-owned Chinese banks had already become more willing to lend money to Chinese automakers in recent weeks as bank regulators have eased restrictions on loans to heavy industry.
Still, Mr. She and other industry leaders said that while government officials have voiced concern to them about the industry’s deteriorating condition, Beijing has not committed to any specific help.
“They’re asking the questions but they haven’t said anything yet” on how aid might be structured, said Frank Zhao, vice president and chief technology officer of Geely Automobile Holdings. “We really hope the Chinese government will come and help us.”
Michael Dunne, the managing director for China at J. D. Power, said in a telephone interview from Shanghai that the executives’ remarks here represented a shift in the position of the Chinese auto industry.
“This is the first I’ve heard of it,” he said, adding that “as the market slows down, Chinese automakers are going to face competition as they never have before.”
Lots across China became increasingly crowded with unsold cars as sales were slightly lower in August and September than a year earlier. Yet manufacturers unexpectedly increased their shipments of new vehicles to dealerships last month by 10 percent compared with a year earlier, seeking to keep new factories busy and avoid layoffs.
Retail sales figures for October are due this week, and are likely to show a further decline that could set off another round of price cuts in a market where discounting is already becoming increasingly common.
Detroit has repeatedly found that raising production in the face of weak retail sales is a recipe for financial trouble, and there is little reason to think that will be different in China.
The Chinese auto industry faces several threats simultaneously. Weakening economic growth, falling real estate prices and a yearlong plunge in the stock market have made consumers leery of spending money. Fuel prices in China are still high despite the recent decline in world
oil prices. And Chinese auto exports, mostly to developing countries in Eastern Europe, Southeast Asia, Africa and Latin America, are starting to crumble.
China’s car industry is already bigger than Japan’s, and is approaching in sales the industries of the United States and all of Europe. China is on track to sell 10 million vehicles this year, while demand in the United States is dropping toward 14 million vehicles.
Automobiles have played a central role in Beijing’s recent plans to move up the manufacturing chain, from making cheap goods that require unskilled or low-skilled workers to more advanced products.
To that end, the Chinese government has provided considerable help to China’s nascent auto industry with research and development spending, as well as loans from state-owned banks.
But there is some disagreement within the Chinese auto industry now about how the government can be most helpful.
Some companies, like Geely, are looking for more government grants to help them develop hybrid gasoline-electric cars and other cutting-edge technologies for which research spending may be cut if sales do not recover.
But Zheng Qinghong, the general manager of Guangzhou Auto, one of China’s largest and fastest-growing automakers, said that the Chinese industry needs the government to help consumers become enthusiastic again about buying cars. Retail sales have dipped a couple percentage points to 750,000 a month; sales were still rising at an annual pace of 24 percent a year ago. “The best way is to boost growth in demand” for cars, through steps like lower car taxes and lower fuel prices, he said in an interview.
Western multinationals would probably benefit at least indirectly from any government initiative to help China’s auto industry, because Western companies are required to do business through joint ventures with Chinese automakers, most of which are partly or entirely government owned.
Jeffrey Shen, the chief executive and president of one of these joint ventures, the Changan Ford Mazda Automobile Company, said that he did not know how the government would help, but that some steps were inevitable. “I’m sure it will come,” he said, with both extra assistance for research and greater availability of loans.
The renewed willingness of state-owned banks to lend money to the auto industry this autumn is in contrast with the United States, where General Motors, Ford and Chrysler have found banks and other investors leery of lending to them.
Government-mandated lending quotas, not interest rates, tend to be the most important limit on bank lending in China. Regulators have begun easing the quotas this fall after four years of fairly tight quotas imposed in an effort to control the growth of the money supply and limit inflation.
Direct loans from the government of the sort under discussion in Washington are not needed in China, Mr. Zheng said. “For now, the Chinese auto industry doesn’t need saving” in the same way as the American industry, he said.
Chinese automakers began facing real difficulties only in the third quarter, and have not yet released results for that period; many release their results only twice a year.
Gas prices have not fallen in China because the government pushed up regulated retail gasoline and diesel prices at service stations to more than $3 a gallon over the last year, but has not lowered retail prices as
oil prices have plunged.
The government is trying to encourage energy conservation and allow
oil refiners to recover financially from sometimes being forced to sell gasoline and diesel below cost earlier this year during the spike in oil prices.
China’s top three export markets for fully assembled vehicles are Russia, Ukraine and Vietnam, all of which are struggling with the global financial crisis.
Great Wall Motor has had a 40 percent plunge in its monthly exports to Russia in the last three months, said Steven Wang, the deputy manager of the company’s international trade division. But Great Wall Motor has still managed to avoid any layoffs because domestic sales remain strong enough to maintain employment, Mr. Wang said.
With China’s largest automakers involved in joint ventures with American automakers, and with the entire Chinese auto industry now seeking its own forms of government help as well, criticism of any bailout for Detroit has been muted. Producers elsewhere in Asia, facing declining markets at home as well, have also been hesitant to criticize.
“We support vigorous competition in the automotive market place and recognize there may be extraordinary situations when such a vital sector of the American economy may require unprecedented actions to assure its long-term viability and a healthy American economy which benefits everyone,” said Jake Jang, a spokesman for Hyundai Motor in South Korea.
But managers at some of the smaller Chinese manufacturers, especially those with hopes of entering the American market some day, are unhappy about the prospect of assistance for Detroit from Washington.
“If G.M., Ford and Chrysler get a lot of support from their government, it’s not fair,” said Gordon Chen, the international business manager of Changfeng Motor, which has displayed cars at the last two Detroit auto shows in preparation for entering the American market in 2011 or 2012.
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