As China gets tougher on fuel economy, some carmakers may be left behind

Tue Oct 21, 2014 2:07am EDT
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By Samuel Shen and Norihiko Shirouzu

SHANGHAI/BEIJING (Reuters) - Chinese automakers from state-owned FAW Co to Zhejiang Geely are racing to sell more eco-friendly cars as they try to meet tough fuel economy rules due next year as part of Beijing's battle against pollution.

But many of China's smaller indigenous automakers will struggle to make the costly upgrades needed to meet the new rules, which aim to push more efficient energy use and which are expected to be toughened every year through 2020.

A technology deficit versus bigger foreign automakers and the cost of developing or obtaining the new technologies needed are likely to speed up consolidation in a fragmented industry of more than 80 registered manufacturers.

The Chinese government last week unveiled tough penalties tied to the new fuel economy rules - from naming-and-shaming those who fail to make the grade to restricting production at non-compliant automakers.

"Restricting production is a very severe penalty," said He Hui, an analyst at the International Council on Clean Transportation, an adviser to China's government on fuel-economy policies. "Chinese carmakers lag far behind foreign firms in their technology repertoire, so the rules add pressure to those already struggling domestic brands."

By next year, all car makers in China, the world's biggest autos market, will be required to achieve average fuel economy of 6.9 liters per 100 km (around 41 miles per British gallon or 34.1 miles per U.S. gallon) across their product line-up. By 2020, the target will have been made more stringent to 5 liters per 100 km (56.5 mpg in Britain or 47 mpg in the U.S.).

That means each car maker will have to improve fleet average fuel economy by more than a third by the end of the decade from today's levels, said James Chao, regional director at IHS Automotive, estimating it will cost "billions and billions of dollars" for the industry as a whole to comply.

"Who's at a disadvantage? ... the local lower volume (manufacturers)," said Chao. "This may well be the catalyst for them to either find a partner or to be acquired."   Continued...

A man holds an umbrella as he walks past a company logo of FAW-Volkswagen at an automobile exhibition in Fuyang, Anhui province, September 12, 2014. REUTERS/Stringer