Chinese auto makers increase production of small cars

In response to the fast-growing demand for small cars, Chinese auto makers Chongqing Changan Automobile and Haima Investment Group both recently announced plans to invest large sums to increase the production of small cars. Virtually all manufacturers in the country have made ambitious expansion plans. Auto makers are seen by some as overly optimistic about the market for small vehicles, and the sector is expected to see a rise of 10 percent to 20 percent in sales volume as well as of the potential for overcapacity in 2010, said analysts.

Chongqing Changan Automobile plans to publicly raise $590 million, which will be used to expand and improve production lines and upgrade small displacement engines as well as increase research and development capability. Haima Investment Group plans to raise no more than $440 million to support the construction of projects in Hainan province and Zhengzhou, Henan province, with an annual production capacity of 500,000 cars, and an expected sales increase of $2 billion.

SAIC GM Wuling Automobile, the largest small car maker in China with annual capacity of approx. one million units, plans to increase its capacity to 1.5 million units by 2012 while Dongfeng Yuan Vehicle, the third largest small car maker when measured by both production and sales, is expected to see a rise of 300,000 units in annual capacity. Faw Jilin Automobile, another established maker of small cars, will launch its second factory with annual capacity of 300,000 vehicles.

Among others, Shaanxi Automobile Group, Anhui province-based Chery Automobile and Liaoning province-based Brilliance Jinbei Automobile have also launched small car businesses during the past two years.

With the increased annual capacity of 2.5 million cars, the small car sector has become the fastest-growing market. The number of auto makers that produce small cars has increased to 12 from previously five, and annual capacity under plan is expected to reach seven million units.

The capacity expansion is mainly attributable to the substantial growth in the small car market since last year when China sold nearly two million small cars, an increase of more than 83 percent. Therefore, the sector has become the largest beneficiary of the country’s auto stimulus package. The strong trend continued this year, with sales of both SAIC GM Wuling Automobile and Chongqing Changan Automobile up more than 100 percent to over 100,000 units, respectively.