Motor industry applies the breaks in slowing Chinese market

Volkswagen and other major carmakers have begun reining in Chinese production, wages and other costs, industry sources said, as executives put a brave face on a sharp slowdown in the world’s biggest vehicle market.

The German car giant's Chinese joint venture, FAW-VW, is cancelling staff bonuses and cutting shifts at its plants near Changchun, northeastern China.

The bonuses being scrapped typically account for more than half of the assembly-line workers’ take-home pay.

Volkswagen and General Motors are among the carmakers most exposed to the downturn in China, which has seen demand for new vehicles slow abruptly as a stock market slump compounds the effects of a cooling economy.

Demand is also shifting from foreign to domestic brands. While China has accounted for more than half of VW’s profit in recent years, GM and its Chinese partners risk being wrongfooted as they pursue a $14 billion expansion in China.

Both have already begun trimming local production - by around 5 per cent in July - according to one China-based consultant.

"The mood is very depressed at VW, BMW or GM," said Clemens Wasner of Austrian automotive consultancy EFS, which advises several German carmakers in Asia.

Hubert Waltl, the production chief of VW's high-end Audi brand, said it had also reduced output at its Chinese plants, trimming the work-week to five days from seven in response to lower demand for models such as the A6 saloon.

The brand’s Chinese facilities were previously “overheated,” Waltl told Reuters.

Audi chief Rupert Stadler told Reuters the company expected "further growth in China over the medium term ... and will not change our investment plans."

A GM spokesman said the company’s business model in China was “fundamentally different” from most of the other major multinationals, with large investments in a wide array of brands including local ones in segments where sales were still rising.

Germany’s BMW, the world’s biggest luxury carmaker, warned last month its forecasts for this year could be at risk from any further deterioration in the Chinese market, where its sales are falling for the first time in a decade.

- Reuters