In recent months, the National Development and Reform Commission has repeatedly issued signals of overcapacity in China's auto industry, which has started to make auto companies uneasy. The National Development and Reform Commission once again involved the auto industry in the “blacklist” of “overheated industries”. Statistics show that the production capacity of the automotive industry in China has reached 8 million, which exceeds the demand of 2 million, and the capacity is under construction of 2.2 million, while the new capacity being prepared and planned will reach 10 million. This has caused the “overcapacity theory” of automobiles to re-emerge during the year. However, it is a matter of opinion that the government has gone from experts to companies and from companies to international agencies to overcapacity of automobiles.

National Development and Reform Commission: Overcapacity

According to a survey conducted by the National Development and Reform Commission, at present, there are 117 vehicle manufacturers across the country, but there are still more than 90 annual output of less than 10,000 vehicles, and it is impossible to achieve scale efficiency. In the first 10 months of this year, the cumulative output of the automotive industry increased by 9.18% year-on-year to 461.89 units, but the profits of the entire industry decreased by 36.7% year-on-year, the loss of loss-making enterprises increased by 86.2%, and the excess capacity of the automotive industry was poor. The consequences have already emerged. Since last year, the growth rate of the domestic auto market has slowed down, the price war has intensified, and the profits of the industry have fallen drastically. The sustainable development of China's auto industry is facing severe challenges. It is reported that the National Development and Reform Commission will intensify efforts to control the overcapacity in the automotive industry. In response to the problem of overcapacity in the automotive industry, it will adopt a series of policies to strengthen macroeconomic control.

Ministry of Commerce: Prices for oversupply of family cars are expected to fall

Recently, the Ministry of Commerce announced the analysis of 600 major consumer products in the first half of 2006. According to the results of the analysis, the prices of household car and other products among 600 major consumer products are expected to fall due to oversupply. According to sources from the Information Office of the Ministry of Commerce, as the income level of urban and rural residents has increased, multinational corporations have increased their investment in China's automobile manufacturing industry, the production capacity of automobiles has grown at a rapid rate, and the new sedan car project has been put into production in 2006. The supply of domestic cars has exceeded demand. Contradictions have become increasingly prominent. The price of refined oil products is running at a high level and the upward pressure is high. Coupled with the introduction of the new "Traffic Safety Law," the responsibility for the compensation for motor vehicle accidents has increased, which has led to a significant increase in the cost of use of sedans and restrained consumer enthusiasm. On the contrary, the demand for low-cost, small-displacement economical cars is quite obvious, and it is expected that the car prices will continue to decline steadily.

Experts in the automotive industry believe that auto production capacity may not be surplus after five years. In the interview, Jia Xinguang, chief analyst of China Automotive Industry Consulting Development Co., Ltd., said that the overcapacity of cars is something that is said to be a few years from now. It is not now that the capacity that has not been formed yet cannot be counted. Normally, the auto industry's production cycle is 5 years. However, with the current development speed of private cars, auto production may not be surplus after 5 years. On the contrary, among the top 10 sales companies in 2005, except for the temporary excess production capacity of Shanghai Volkswagen and FAW-Volkswagen, other companies are experiencing tight production. Regarding the "iron evidence" of pushing the auto industry into the "overheated industry" - the difference in production and sales of 2 million vehicles, Jia Xinguang believes that this data is normal. All enterprises' capacity design should have a certain amount of affluence and have room for development.

Manufacturer response: insufficient capacity

Yin Tongyao, chairman of Chery Automobile, once told reporters that because of the tight production capacity, Chery’s old products have failed to meet the market for more than 1,000 orders owed each month in the past two months. At present, Chery’s production capacity is about 200,000 units, and Chery’s sales volume reached 189,000 units in 2005; Guangzhou Honda set production and sales targets for 2006 at 260,000 units, an increase of only 30,000 units compared to last year. General Manager of Guangzhou Honda Feng Chuan Shang’s explanation is based on market demand planning, and the 240,000 current capacity constraints do not allow him to set a higher goal; Beijing’s modern production and sales this year can only increase 70,000 vehicles, an increase of 30%.” The National Development and Reform Commission does not approve new projects. At present, the capacity is only 300,000 vehicles."

In fact, what makes auto manufacturers feel helpless is that it is a normal phenomenon that capacity planning exceeds actual production. “The investment cycle of auto production is generally 5 years, and it is impossible to grow for one year. Equipment is grouped and one line is at the beginning. To set a good production capacity, the size of the production capacity is determined to be how big it is, not how you want to adjust the tone." One car manufacturers said. At the same time, in the opinion of auto manufacturers, the actual production capacity of the auto industry should be surplus, because according to the theory of economics, relative surplus can cause competition, and insufficiency can result in monopoly. Miao Wei, general manager of Dongfeng Motor Co., Ltd., also believes that the current overcapacity in China's autos is only a structural excess, but also there is a partial lack of capacity, which is the overcapacity and capacity shortage coexist.

International agencies: China's auto industry is returning to normal

Fitch Ratings recently announced that it is expected that the rapidly growing Chinese auto industry will return to a more normal level of healthy growth in 2006 and thereafter, and industry consolidation is expected to accelerate. Fitch pointed out that a large amount of investment has caused concern over excess capacity, leading to increased pricing pressure on cars. On the one hand, supply continues to increase; on the other hand, raw material prices continue to rise, and dual pressures have caused automakers' profit margins to continue to decline. The expansion strategy of large foreign-funded enterprises may further increase the situation of overcapacity and may lead to polarization of the industry. Fitch also pointed out that because Chinese automakers lack core R&D capabilities, the industry will still rely on foreign technology inputs. However, Fitch still believes that China's auto industry has a good prospect. The reason is that China's economic growth is strong, its purchasing power is increasing, and its per capita car ownership rate is low.



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