Keep Alert about "Subprime Crisis" in Engineering Machinery Industry

BEIJING, June 15, 2011 /PRNewswire-Asia/ -- The entire engineering machinery industry continued rapid growth momentum in Q1 2011. As the first manufacturer to post its Q1 sales, Guangxi Liugong Machinery Co., Ltd. reported that both production and sales volume of its various engineering machinery exceeded 20,000 units, double the year-ago period. In particular, both production and sales volume for loaders, excavators and forklifts for a single month (March) achieved record results. The excavators sold by Xiamen XGMA Machinery Co., Ltd. in March totaled 1,389 units, but only about 2,800 units were sold in the full year of 2010. In the first quarter, the net profit of SANY Heavy Industry Co., Ltd. is expected to increase by more than 135%; the increase in net profit of Hebei Xuanhua Engineering Machinery Co., Ltd. is 497.85%~697.13%; the net profit of Zoomlion Heavy Industry Science and Technology Development Co., Ltd. increases by approximately 130%~170% year on year; and XCMG Construction Machinery Co., Ltd. announces its expected growth of 98%~117%, achieving profit of RMB 1~1.1 billion Yuan.

Industry analysts from cmb2b.com, the leading commercial portal in engineering machinery, hold the view that from an overall perspective, the construction of social security housing, water conservancy and high-speed rail guarantee that the sales of engineering machinery in 2011 will maintain a higher absolute level. Ministry of Housing and Urban-Rural Development of the People's Republic of China stipulated that various social security housing programs planned in 2011 must be commenced before Oct. 30. No. 1 File passed by CPC Committee determined that over the next ten years, annual average investment in water conservancy will double that of 2010 and reach RMB 4 trillion Yuan. And as high-speed rail and highway investments continue to heat up, the sales of engineering machinery will be quickly raised to a new level.

As the market becomes increasingly competitive, some companies provided special offers in some network platforms like cmb2b.com, including lucky draws of big household appliances to cars when buying their products, to expand their influence across the industry and win more market share. Today some companies are even implementing more explosive and attractive promotions, such as zero down payment mortgage to sell their products, the excavator industry in particular. Now the most common sales policy in the industry is 30% down payment, but many excavator manufacturers actually permit "10% down payment plus 5% deposit when taking delivery of products"; namely, an excavator valued at RMB 800,000 Yuan can be driven home after paying less than RMB 120,000 Yuan. Now that 10% down payment exists, zero down payment isn't surprising at all. Some crane manufacturers even allow for "zero down payment, one-year free using right and payment starting on the second year".

Such a phenomenon gets more and more intense now. In addition to small-sized companies, some large-sized renowned companies are also involved in it and the products range from a kind of machine to several kinds of machines. There is a growing concern over the prosperous situation of both production and sales volume amongst the industry professionals though it really brings joy to the industry. The most common sales mode adopted today is equal monthly mortgage repayment. If the users are unable to repay the loan on time, they may return the goods for reasons of quality issues or complaints about the manufacturers' after-sales services, and finally cause a lose-lose situation.

But some industry professionals also argue that there are still many government-invested projects and that the mortgage term for engineering machinery is about 3 years. The investors can recover their investment costs in 3 years (about 3 years for excavators made in Korea and three years and a half for excavators made in China). So we don't have to worry about the credit crisis too much. Moreover, the excavators witness a rapid sales growth and some small excavators have been enlisted in catalogues of agricultural machinery, which are entitled to subsidies. Some internet users in sns.cmb2b.com even tease that the excavators can be bought in the way of buying houses for leasing operations. The detailed process is: buy the first excavator by mortgage loan, and then buy the second excavator after paying 50% of machine price. Continue it, and a decent leasing company can be set up without much start-up capital as long as you can solicit enough projects.

Given the turmoil hampering the healthy development and sustainability of the entire industry, China Construction Machinery Association (CCMA) convened major industry media for an emergency exchange and communication meeting to discuss how to tackle the current situation. The attendees unanimously believe that such an enticing promotion in the industry has led to a multitude of behaviors to purchase engineering machinery irrationally. It will not only compromise normal market competition, but also pose great operation risks to manufacturers and their distributors.

At the meeting, President Qi Jun expressly stated that for irrational promotions appearing in the industry, he doesn't support the mortgage sales mode with zero down payment. He believed that it is simply a suicide. It will evolve into a price war in the entire industry, which will, in turn, severely affect the fair market competition, hinder the improvement of products and service quality, and finally cause damage to corporate brands and images, provided that such a phenomenon can't be effectively reined. He urged companies to cherish their reputations and hard-won industry prospect, abide by the industry's self-disciplined pact, calmly analyze the market conditions, maintain a rational operation philosophy and consciously defend the industry's fair and normal market competition. They should aggressively win the market share by adopting market-oriented marketing modes, and building upon quality products, timely and effective after-sales services and constant technical innovations to conduct competitions.

SOURCE China Construction Machinery Association (CCMA)