An employee looks on next to an assembly production line of Buick cars at a General Motors factory in Wuhan, Hubei Province, Jan. 28, 2015. (Photo : REUTERS)
Chinese car manufacturers are now faced with the problem of trying to sell enough cars to cover its production.
Consultant Bill Russo of Gao Feng Advisory, a former Chrysler executive, pointed to Chery as a classic case.
Chery has a capacity to make 900,000 vehicles annually, but could only sell half of that number last year.
"The pressure is that once they receive the permission to build, they feel like they have to build," Russo quipped.
Worse, some carmakers who are regretting plans to open Chinese plants cannot backtrack as the decision is deemed final, said Jochen Siebert, managing director of consulting firm JSC.
Thus, domestic and foreign-based carmakers are building more factories in China than anywhere else. By 2017, China will have 140 car production plants, 17 more than it had at the end of 2014.
According to IHS Automotive forecasts for 2015, factories across China will build 10.8 million more vehicles than will be sold in Greater China.
JSC and Deloitte Consulting warned that overcapacity will get worse in 2017 when China pushes its idle capacity to cover about 11.4 million vehicles, more than double that of European counterpart.
For now, the Chinese car market is still profitable with Chinese automakers accounting for 70 percent of carmakers with the highest profit margins in the world, according to Bloomberg Intelligence.
However, lower prices are expected in the next few years due to increased competition amid slowing growth in car sales prices, said Yang Yipeng, analyst at Goldman Sachs' Chinese affiliate.
