Dongfeng pulls pin on Honda engine JV

CASUALTIES in China’s automotive manufacturing space are mounting as the world’s largest car market rapidly moves away from ICE-powered vehicles to fully electric.

The situation is exacerbated by fierce competition for sales and too many “players” that has caused rampant cutthroat discounting at manufacturing through to retail levels with Honda the latest to feel the effects as JV partner Dongfeng Motor moves to extricate itself from their arrangement. 

The two had been in 50:50 partnership for 27 years via Dongfeng Honda Engine company but the volatile state of the domestic Chinese car market, in particular its swing away from ICE, has prompted the state-owned Dongfeng Motor to sell (list) its 50 per cent stake in the Guangzhou-based JV with Honda.

The engine company, which employs 827 workers, lost millions last year with accumulated debts approaching $A720 million.

Dongfeng is also grappling with a massive sales slump as volumes have more than halved in eight years from 3.8 million units in 2016 to 1.5 million in 2024 as a result of competition and likely unpopular cars.

In a report, Automotive News said Dongfeng listed its stake for sale on the Guangdong United Assets and Equity Exchange on 18 August, according to the exchange website.

A reserve price has yet to be set, and the listing deadline is 12 September.

Honda may now find itself linked to another shareholder if Dongfeng finds a buyer for its stake assuming Honda wants to continue making ICE in China which, at this stage is unclear particularly given the growing unpopularity of combustion engine vehicles in that country.

Automotive News reported the Japanese manufacturer’s “desperate attempt” to stem to flow of red ink by slashing production capacity at the Guangzhou engine plant by half earlier in the year (according to media reports) and set up an EV production line in the same city with another Chinese automaker partner, which started operations late last year.

Other effects from the highly competitive Chinese domestic market are being felt right down through the local level where the quest to move metal has become so fierce that it’s rumoured half of the country’s dealerships operated at a loss in the first six months of this year.

The report highlights how cutthroat the Chinese market has become in its fast-paced shift to electric vehicles with Japanese brands including: Honda, Toyota and Nissan caught “flatfooted” now facing the tough task of trying to make up ground lost to popular domestic Chinese brands such as BYD.

Other “outside” automakers who entered China with JVs years ago are also on tenterhooks and looking for new directions numbered among them Volkswagen and Stellantis.

With an overabundance of players all chasing a slice of the new vehicle pie in the Chinese market, the situation is not tipped to ease any time soon.