Chinese car makers brace for another bumpy ride after tough 2018

Ford was the worst performer among global carmakers in China last year, with its sales shrinking 37 percent. (AFP)
Updated 14 January 2019
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Chinese car makers brace for another bumpy ride after tough 2018

  • Companies such as homegrown Geely and Britain’s biggest carmaker Jaguar Land Rover have in recent days flagged caution about China sales in 2019
  • China’s state planner has said it will introduce policies to lift domestic spending on items such as autos, without providing specifics

BEIJING: Carmakers in China are bracing for zero to tepid growth in sales this year, after a tough 2018 when the world’s top auto market probably contracted for the first time in about two decades, as slowing economic growth drags on demand.
Companies such as homegrown Geely and Britain’s biggest carmaker Jaguar Land Rover have in recent days flagged caution about China sales in 2019, hit also by Beijing’s trade war with the United States.
“We should notice the big uncertainties among macro economy and trade tensions, which hit the auto market in China last year and may happen again this year,” Yale Zhang, head of consultancy AutoForesight, said.
China’s top auto industry association expects the country to sell 28 million vehicles in 2019, steady versus 2018, while other government and industry bodies see a 0-2 percent growth.
China’s Association of Automobile Manufacturers (CAAM) is expected to announce later on Monday that the country’s car market contracted in 2018, the first time since the 1990s.
Shares in Chinese carmakers Geely and BYD fell more than 2 percent in morning trade ahead of the data.
Automobile sales in China fell about 14 percent in November from a year ago, steepest in nearly seven years and the fifth straight decline in monthly numbers.
Ford was the worst performer among global carmakers in China last year, with its sales shrinking 37 percent.
Geely, China’s most successful carmaker, sold 20 percent more cars in 2018, but this was sharply lower than a 63 percent growth in 2017. It is forecasting flat sales this year.
Japan’s Toyota Motor, however, bucked the trend, with a 14.3 percent rise in sales in China, versus 6 percent growth in 2017, helped by better demand for its luxury brand Lexus and improved marketing efforts.
The bleak numbers add to worries for investors, already spooked by signs of a broader drop in demand from the world’s No.2 economy, especially after Apple’s rare revenue warning citing weak iPhone sales in the country.
Analysts are, however, counting on measures promised by China to buoy spending as well as rising demand for new energy vehicles (NEVs) to bring some relief.
NEV sales are expected to hit 1.6 million units in 2019, versus 1.2 million in 2018, CAAM has predicted.
China’s state planner has said it will introduce policies to lift domestic spending on items such as autos, without providing specifics. Beijing has also made changes to the income tax threshold to hike incomes and personal spending power.
This could help resolve the industry’s current issues of unsold inventory, drive sales growth and provide relief to the economic pressures China is facing, said Patrick Yuan, Hong Kong-based analyst at Jefferies.
“With that, car sales growth could recover to as high as 7 percent” this year, he said.
According to Alan Kang, an LMC Automotive analyst, demand could also draw support as consumers stop putting their buying decisions on hold in hopes Beijing will reintroduce purchase tax cuts on smaller cars — a policy it phased out last year.
As their hopes for tax cuts “evaporate in 2019,” these consumers will trickle back in, he added.
However, some analysts struck a somber note amid forecasts China’s economy would slow further this year. Data this month is expected to show the economy grew around 6.6 percent in 2018 — the weakest since 1990. Policy sources have said Beijing is planning to set a target of 6-6.5 percent for 2019.


Etihad proposes to invest in Jet Airways at 49% discount

Updated 16 January 2019
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Etihad proposes to invest in Jet Airways at 49% discount

  • The 25-year-old Indian airline has been roiled by financial difficulties, racking up a pile of dues to pilots, lessors and vendors
  • Jet will not be able to continue funding operations beyond the next week and Etihad is willing to inject $35 million if some conditions are met

Etihad Airways has offered to pick up shares of debt-laden Indian carrier Jet Airways Ltd. at a 49 percent discount and to immediately release $35 million after certain conditions are met, CNBC-TV18 reported on Wednesday.
Shares of Jet Airways, in which Etihad already owns a 24 percent stake, tumbled as much as 7.5 percent to 271.75 rupees ($3.83) in their biggest intraday drop since early December.
The Abu Dhabi carrier has offered 150 rupees for each Jet share, CNBC-TV18 said, citing a letter from Etihad’s CEO.
Tony Douglas has written to the State Bank of India (SBI) , Jet’s biggest lender, on the restructuring plan for the Indian airline, the report added.
The 25-year-old Indian airline has been roiled by financial difficulties, racking up a pile of dues to pilots, lessors and vendors, at a time when intense pricing competition, a weak rupee and rising fuel costs are weighing on the broader airline sector in the country.
Jet will not be able to continue funding operations beyond the next week and Etihad is willing to inject $35 million if some conditions are met, the CNBC-TV18 report cited Douglas as saying in his letter.
Jet and Etihad representatives are due to meet in Mumbai with lenders, led by SBI, on Wednesday to discuss the restructuring proposal that involves Etihad increasing its stake, a source with knowledge of the matter told Reuters on condition of anonymity.
Etihad wants Jet’s founder and Chairman, 69-year-old Naresh Goyal to step down from the board and his stake to be slashed to 22 percent from 51 percent, according to CNBC-TV18.
Goyal’s penchant for control, according to people who have worked with him, has emerged as a major obstacle as the airline tries to negotiate a rescue deal, Reuters reported last month.
Etihad is also seeking an exemption from the market regulator on preference pricing and open offer guidelines to invest more for the bailout, the report added.
Under India’s capital markets regulations, Etihad is required to make an open offer to shareholders for a majority of the shares once its stake goes past 25 percent, unless it obtains a rare exemption from the market regulator.
India Ministry of Civil Aviation Secretary R N Choubey on Wednesday told reporters that the aviation ministry had not yet received an official request from Jet and Etihad for an exemption from an open offer.
Jet and Etihad were not immediately available for comment.