High Inventory forces FAW car to struggle for life?
Apr 05,2016 00:00:00
FAW Car seems to walk into a cliff edge in the first half of year. Estimated performance for 2016 half-year shows that FAW Car faces a loss of RMB 790m to 850m in the period, decreasing 591.22% to 628.53% compared with the profit of RMB 181m in the same period of last year. In fact, the situation starts long. As early as in 2012, FAW Car received an annual loss of RMB 800m, and the profit decrease turned out to be 468%. Its profit decline in 2014 and 2015 also reached 80% and 60% respectively.
FAW Car is comprised of four series of products, including Besturn, Hong Qi, FAW Mazda and Oley. Apart from Besturn B30, whose monthly sales volume reaches 2,577 units in June, other models in Besturn have not exceeded 1,000 units in sales volume. Hong Qi and Oley’s sales even dropped to zero in June. The only SUV model, Besturn X80, sells 888 units in June, and the total sales volume reaches 8,515 units in the first six months, decreasing 73.2%. Some experts analyze that, FAW Car has no competitive SUV model. The joint venture company, FAW Mazda, also faces decreasing sales in the first six months, dropping 32.6% from 40,600 units to 27,300 units.
It seems that FAW is transferring some of the sales pressure to terminal dealerships. Published data from China Automobile Dealers Association shows that FAW Car ranks first in all domestic auto companies in terms of Inventory Coefficient. FAW Car’s Inventory Coefficient reaches 2.5 in June, which means it will take 2.5 months to digest the current inventory. According to international practices, inventory coefficient larger than 2.5 represents great operation pressure and risks.
FAW Car launches two new models in 2016, Mazda CX-4 and Besturn B50. CX-4’s first monthly sales reach 6,347 units. Besides, 10 Hong Qi products, including two concept vehicles were presented in 2016 Beijing Auto Show and they will be launched into market in the future three years. FAW Group also sets an annual target of producing and selling 100,000 units for Hong Qi products.