A well known consulting firm has issued a downbeat forecast for China’s once-booming auto industry, forecasting growth slowing dramatically over the next seven years.
Alix Partners, which has a large automotive practice, predicts in a new report that the Chinese market will grow at an average rate of 4.1 percent for the period of 2014 to 2018, and then slow further to an average of 2.9 percent from 2018 to 2023.
The low growth rates signal “a new normal” for the world’s largest automotive market, the firm said in a study presented in Shanghai.
“Many global OEMs are looking to the China market to provide growth and profits, but may be disappointed if current trend continues,” Alix wrote.
China auto sales had grown at a torrid pace until last year, averaging 19.3 percent annual growth between 2005 and 2014.
The Alix study presents the latest outlook taking a significantly dimmer view of China’s prospects. Last week investment research firm Morningstar forecasted the Chinese auto industry will stagnate for the next few years. Morinignstar sees passenger-car sales in China falling this year and again in 2016, as a result of the country's economic turmoil and declines in its stock market.
It expects 2017 sales to rise compared to 2016, but the firm forecasts the 2017 total will fall short of the 2014 total.
Alix stopped short of forecasting such a dip in sales, but outlined other signs of trouble, noting the low factory utilization rates of Chinese auto makers. Last year, SAIC Motor Corp., FAW Group and Geely Automotive ran their local-brand auto plants at capacities of 61 percent, 50 percent and 52 percent, respectively, according to Alix. The firm pointed out that auto plants typically need to run at 85 percent of their capacity to operate profitably.
Lower utilization rates are a "formula for increased price competition when combined with flat sales," Alix wrote.
The joint-venture plants that the Chinese auto makers operate with General Motors, Toyota, Volkswagen and other global manufacturers ran at near-capacity rates last year, Alix said.