Autocar reported Thursday that the Chinese government is expected to require mergers between the masses of car manufacturers later this year. Right now, there are 130 companies producing their own brand of car in China and the majority of those companies are selling less than 10,000 units per year. For comparison, Ford sells more than that in two average days in the US. Only 5 of those 130 companies sold more than a million cars last year and the top ten selling car companies accounted for a whopping 87% of sales. That means that 8% of the car companies are producing 87% of the cars sold annually… with the other 92% of the companies producing the other 13% of the cars sold. Autocar mentions that 87% of the market equaled 11.89 million cars, meaning that those other 120 small companies combined to produce less than 2 million cars.

To break it down:10 companies (8% of the car companies in China) = 11.89 million vehicles120 companies (92% of the companies in China) = Less than 2 million vehicles

By 2012, the Chinese government wants to see multiple companies with production capabilities of 2 million units per year, along with the hopes of seeing 20% of their vehicles sold to the export market. How does the government enforce this merger idea? Well, if the suggestion becomes law, car companies working to expand their production to the recommended 2 million per year will not be permitted to build new production facilities unless they merge with another company (or multiple other companies).

Why does this matter? Well, in the mid 1960’s, the Japanese government made a similar move, taking a bunch of smaller, struggling companies with medium sized, more successful companies. The combined efforts allow for cost savings thanks to things like combined R&D, resulting in cheaper cars and as these new companies combine their resources they may be more capable of moving their products into foreign markets. An example of this policy working in the past was when Nissan Motors and Prince Motors merged in 1966, under recommendation of the Japanese government. Prince was a small company but they did own one very important vehicle – the Prince Skyline. The Prince Skyline eventually became the Nissan Skyline and today US supercar shoppers know it as the Nissan GT-R.

While many of the Chinese brands displayed at events like the 2010 Detroit Auto Show are viewed unfavorably, their combined efforts could give them a much better chance of exceeding around the world – unfortunately including the good ol’ US of A.