China's hoping to make its auto makers more competitive in one of the world's biggest auto markets: China.

The carmakers may have different ideas of how to get there.

 

There are over 100 auto makers based in China, currently the world's second largest car market, but domestic sales continue to be dominated by overseas brands like Volkswagen, Toyota and Honda. Only two Chinese firms -- Chery and Geely -- made the top ten list of annual passenger vehicle sales last year, according to data from JD Power.

Beijing has hatched a plan to change this. It's centered on a round of consolidation in the next two years that'll leave two or three companies selling more than two million cars a year, and five others with sales of around half that.

Absent is any incentive for the automakers to include acquisitions of foreign rivals, which some of China's carmakers see as their path to increased competitiveness.

Geely, for example, recently said it's interested in using international acquisitions to gain access to technology and sales platforms, and to circumvent trade barriers. Volvo is one expected target.

Beijing is cautious about such moves -- understandable given the recent history of cross-border mergers in the auto sector.

But the consolidation plan might also face resistance from local governments seeking to protect their parochial interests. Individual firms too, whether private or state-owned, may not be as pliant as the government normally expects.

What Beijing does have on its side is the worsening condition of China's auto market. Last year, Chinese auto sales grew at their slowest pace in a decade.

Suffering smaller car makers may entice deal making at home -- keeping the larger Chinese auto makers' eyes off of overseas temptation.