The Chinese automotive industry is currently undergoing a significant wave of restructuring. Small car manufacturers are expected to be the most affected by this transformation. In 2007, the Chinese auto market continued its rapid growth, with passenger vehicle sales increasing by 26% in the first half of the year. This marked another leap forward in an industry that has been expanding at an accelerating pace since the early 2000s. By the end of the year, it was anticipated that both production and sales would surpass or reach 9 million units. However, as more companies entered the market—both automotive and non-automotive—authorities began to express concerns about potential overcapacity. Industry experts from both inside and outside China have also pointed out that there are far too many auto companies in the country, with small scale and fragmented investments being the key characteristics. These smaller firms are likely to face the brunt of future mergers and acquisitions driven by market competition.
China currently has over 130 automobile manufacturers, the highest number globally. According to data from the China Association of Automobile Manufacturers, the top ten companies accounted for more than 84% of total sales in 2006. The remaining 120 manufacturers had a combined sales volume of less than 1.2 million vehicles. Most of these companies sell fewer than 10,000 units annually, with dozens selling even less. China has more than 80 domestic brands, while the U.S. market has only 47 local brands and just 15 passenger car manufacturers. This overwhelming number of players leads to excessive overlap and inefficiency.
In the first half of 2007, 16 Chinese automakers had a market share of 1% or less, with some selling fewer than 100 units per year. Even joint ventures are not immune to these challenges. For example, Nanjing Fiat saw its market share drop below 1%, partly due to lack of investment and poor competitiveness in the fast-growing Chinese market. Concerns over the outsourcing of the MG brand led to a failure in making further joint investments, which hurt the company's performance.
Mergers and reorganizations are already taking place. The automotive industry is highly dependent on scale and openness. A report from the Ministry of Commerce’s Industry Injury Investigation Bureau and the China Automotive Technology and Research Center highlighted that companies producing less than one million cars annually may no longer be viable independently, and those producing two million may also need to restructure. The government has been actively supporting the consolidation of domestic auto companies.
Large-scale mergers are already happening. Examples include Dongfeng Group acquiring Zhengzhou Nissan, SAIC acquiring Ssangyong and Rover, Chery and Brilliance forming joint ventures, and Changan Automobile and Jiangling Motors merging. As the industry becomes more competitive and overall profits decline, differentiation among companies will become more pronounced. Some will grow stronger, while others may suffer losses or be acquired.
The biggest challenge for Chinese automakers after mergers and acquisitions will be expanding globally. Companies like Chery and Geely have already taken steps to enter international markets. Before acquiring Ssangyong, Nanjing Auto focused on strategic partnerships. Increasing participation in global competition is essential for becoming true regional leaders in the automotive industry.
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