Wednesday, March 25, 2009

FAW Projected Capacity Now 300,000 Fewer

According to, FAW Toyota will delay the opening of a new plant in Changchun which was to have had a capacity of 100,000 Corollas a year. Combined with its intention to sell an already constructed, but as yet unused, factory in Chengdu announced earlier this month, FAW's projected capacity is already 300,000 fewer vehicles. First Auto Works, the group holding company of FAW Toyota, is currently China's second largest automaker by number of units sold.

FAW and Toyota announced this planned factory only last October, and while FAW has obtained its share of the funding, Toyota has yet to contribute. This is thought to be part of Toyota's overall strategy for cutting global capacity during the current downturn.

According to Gasgoo,
FAW Toyota has a total capacity of 440,000 vehicles in China, but in 2008 the joint venture fell short of its sales target of 410,000 units and this year it aims to sell 380,000 units. The surplus capacity has rendered the facility expansion less urgent for the moment.
FAW's recent announcements seem to run counter to other announcements of capacity increases within the past year including new factories for FAW-Mazda, FAW-Haima, Brilliance and Dongfeng Honda, among others. And despite the fact that Chinese auto sales have surpassed those of the United States for the past two months in a row, overall Chinese sales growth is considerably weaker than in recent years -- this despite the government's recent successful attempt to goose sales by cutting sales taxes on small cars.

It's amazing how quickly conditions can change, and how quickly they can affect ambitious plans. If FAW is cutting back capacity expansion this quickly, can other automakers be far behind?

At this point, smart money in China should be going toward R&D to develop independent brands (自主品牌) and alternative energy vehicles (新能源汽车). In the coming capacity shakeout, those companies with a technological edge are more likely to survive. Those that offer little more than massive production capacity may find themselves carved up and sold off to the winners.

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