Facing a Shrinking Market, Ford and Groupe PSA May Leave China: Industry Analysts

August 4, 2019 Updated: August 4, 2019

Chinese auto industry news sites are predicting that carmakers Ford and Groupe PSA may leave the Chinese market soon, as recently released data shows that their sales have slumped from a year ago.

The data reflects a broader downturn in China’s auto market since last year, when sales declined for the first time in almost three decades. This year, the market is predicted to be even worse.

Automakers in China produced 27.8 million cars and sold 28.1 million cars in 2018, which is 4.2 percent and 2.8 percent less than 2017, respectively, according to Chinese auto market data supplier Marklines.

Sales of U.S. brands dropped by about 18 percent while French brands fell by about 33 percent.

Ford

In 1995, Ford founded Ford China in Shanghai. Chinese investment rules currently require that foreign car factories must be owned and operated by joint-ventures with local partners.

Ford China has established joint-venture factories in Jiangxi Province, Chongqing City, Nanjing City of Jiangsu Province, and Shanghai.

According to Ford’s 2019 second-quarter report released on July 24, Ford incurred $155 million in China losses. Ford China lost $128 million in the first quarter.

Ford also released a China market sales report on July 5. In the second quarter, it sold 154,042 vehicles, which is almost 22 percent less than the year-earlier quarter.

Last year’s numbers were disappointing. State-run media Beijing Business reported on July 30 that Ford Chang’an, a joint venture of Ford that’s based in Chongqing, has five factories that can manufacture 1.6 million cars per year. But in 2018, Ford Chang’an sold just 377,800 vehicles, which is less than 25 percent of its manufacturing capability.

The report quoted a Beijing Ford dealer, who said the company has been paring its inventory due to reduced demand, and foresees no profits from the sales.

Groupe PSA

Groupe PSA has five brands: Peugeot, Citroen, DS, Opel, and Vauxhall. The company entered the China market in 1985, and has factories in the cities of Wuhan, Chengdu, Xiangyang, and Shenzhen. Only its Shenzhen factories have the capability to manufacture 200,000 cars per year.

Gasgoo, a Chinese online news site that covers the auto industry, reported in May that the market share of Groupe PSA fell to 0.8 percent from 1.7 percent in the first four months of 2019. In addition, sales were less than half of what was sold during the same period in 2018.

“Groupe PSA’s brands are being marginalized rapidly,” the report stated.

Additionally, PSA’s Shenzhen factories only sold 813 cars in the first four months of the year, which is just 1.2 percent of its manufacturing capability, according to Gasgoo, citing data from the China Association of Automobile Manufacturers.

“How much longer can Groupe PSA and Ford stay in the China market?” another Chinese online media, Great Daily, speculated in a recent analysis.

Great Daily predicted that both companies may leave China soon, as Japanese carmaker Suzuki did last year. In May 2018, Suzuki sold all its shares of its joint venture based in Jiangxi Province, Suzuki Changhe, to its Chinese partner, Changhe Automobile.

Then, in September 2018, Chinese carmaker Chang’an Automobile announced that it bought a 40 percent stake in Suzuki Chang’an from the parent Japanese company, and bought a 10 percent stake from Suzuki Motor China for just one yuan ($0.15). Following the deal, Chang’an Automobile would own 100 percent of the shares in Suzuki Chang’an.

Suzuki Chang’an sold 86,000 cars in 2017, which was 25 percent less than in 2016. Chinese state-run media Xinhua reported in September 2018 that the lagging sales were the reason Suzuki left China.

Chinese economists broadly attribute the auto market woes to the overall downturn in the Chinese economy’s growth, as consumers are less likely to invest in high-priced consumer goods.

Moreover, the Chinese regime launched more strict emissions rules for vehicles this year, as part of its bid to combat air pollution. Cars that don’t comply with the new standards won’t qualify for a license plate.

Rolled out in two phases, non-commercial cars would be required to have carbon dioxide emissions of no more than 500 milligrams per kilometer (or 804.7 mg/mi) and 700 mg/km (1,126.5 mg/mi) by July 2023. The rule is already in place in Shanghai and eventually will be expanded to all Chinese cities.

As the standards are more strict than current European and U.S. emissions standards, European and U.S. carmakers are likely to face manufacturing challenges for the China market.