China envisions transformation of its auto industry

By Aida Sevilla-Mendoza November 05,2014

“When America sneezes, the rest of the world catches a cold,” is the adage affirming the impact of the United States on the global economy. Now, the impact of China’s economy worldwide is growing so fast that it overtook the US in terms of automobile production and sales five years ago in 2009. Undoubtedly, China’s automotive industry has and will continue to affect the fortunes of the global automotive industry.

 

The total mainland population of China in 2013 was 1.36 billion with gross domestic product (GDP) growing 7.7 percent over 2012. In 2013, car sales in China surged to 21.98 million, up nearly 14 percent over the previous year, according to the China Association of Automobile Manufacturers.

 

By the end of 2012, China’s vehicle population had reached 240 million, of which 120 million were passenger cars. The 15.1 million new cars added in 2012 were more than the country’s entire car population at the end of 1999, the Ministry of Public Security reported.

 

GAF 2014. Small wonder, then, that when the China Council for the Promotion of International Trade, Automobile Committee organized the 5th Annual Global Automotive Forum (GAF 2014) on Oct. 15-17, hundreds of delegates from 18 countries including the United States, Britain, Germany, Italy, Canada, Finland, Japan and South Korea representing domestic and foreign OEMs (original equipment manufacturers), industry experts and analysts, component suppliers, academe, international banks and financial institutions and media, traveled to Wuhan, the capital of central China’s Hubei province and China’s second biggest auto production center (1.35 million vehicles a year) after Shanghai.

 

The forum organizer invited this columnist as the only Philippine media representative (showing the international reach of the Inquirer) and sponsored my attendance at GAF 2014. Some 110 domestic and foreign media including China Central Television, West China City Daily, Automotive Observer China and The Wall Street Journal covered GAF 2014 where the main theme was “Vision for the Transformation of China’s Automotive Industry.”

 

Aside from high-ranking Chinese government officials from Beijing, Shanghai and Wuhan, industry leaders such as the chairmen, CEOs, VPs or GMs of Dongfeng Motor Corp., Changan Automobile Group, BAIC Group, Qoros Auto Co. Ltd., BYD, Geely Group, Brilliance Auto Group, FAW and JAC Motors tackled topics including Rethinking “Going Global;” Traditional Auto Industry is Being Buffeted by the Internet; Enterprise Competitiveness and Enhancement; Auto Financing; Connectivity and Self-Driving Cars; the Transformation of China’s Auto Dealers and Auto Suppliers; the Environment, Energy Conservation and New Energy Vehicles; New Angle and New Mentality in Auto Design; Role of Capital Markets for the Growth of the Auto Industry; and the Road Ahead for the Auto Industry.

 

SPEAKING UP. The CEOs of General Motors China; Pininfarina S.P.A. Italy; Beijing Mercedes-Benz Sales Service Co. Ltd.; BMW Automotive Finance (China); Continental China; the Society of Motor Manufacturers and Traders Ltd., UK; Delphi Electrical and Electronic Architecture, China; and Lear Corp. Asia-Pacific also got to speak up, along with the EVPs of Bosch (China) Investment Ltd. and Magna International Inc. Canada, the chief marketing officer of Volkswagen Group, Greater China and Asean Regional, as well as the design directors of Chery Motors China, Geely Automotive China, BMW Design Works Shanghai and VW Group China.

 

The Designer Roundtable, participated in by design directors, was conducted entirely in English since they were all Westerners, and the moderator was the editor of Car Design News, United Kingdom. Ditto the brainstorming session on Connectivity and Self-Driving Cars as all panelists and the moderator spoke English except the Automotive Engineering Department dean of Tsinghua University.

 

Otherwise, all the plenary sessions, panel discussions and debates were conducted in Mandarin, requiring non-Chinese participants to don ear phones to hear the English translation, which was inadequate in some cases.

 

At the opening plenary session in the East Lake International Conference Center—not far from the Renaissance Wuhan Hotel where the media guests stayed—Wang Ruxiang, chair of China Machinery Industry Federation, said that while China’s auto production and sales volumes rank first in the world, it has entered a critical period and must undergo comprehensive transformation and upgrading from a focus on producing volume to producing quality.

 

ADJUSTMENTS. “China should avoid blind acceleration and a GDP ranking-oriented target and should consider structural adjustments which can be achieved by accelerating mergers and acquisitions and increasing innovation,” Ruxiang said. “We should provide more energy-efficient products, prioritize globalization as a strategic goal and expand aftermarket services and supply chain cooperation to build global industrial competitiveness.”

 

Wang Xia, chair of the Automotive Committee of the China Council for the Promotion of International Trade, agreed that the industry has entered a crucial period and pointed out “a huge contrast between the Chinese automotive market volume and the relatively weak position of the Chinese brand and technology.”

 

Xia noted that the product positioning and pricing of Chinese brands versus international brands overlap on a large scale as the competition is intensifying with Internet and mobile networking technology, and Big Data becoming essential components of motor vehicles.

 

Indeed, as observed by Jay Kunkel, one of the panelists and president of Lear Corp.’s Asia-Pacific operations, the Chinese market is already the most competitive market in the world with over 30 different brands fighting for market share.

 

Ralf Kramer, executive board member of Continental AG Germany and president of Continental China, said that since China is the world’s largest Internet user and has the fastest growing smartphone population estimated at 500 million mobile netizens, consumers know about—and look for—the latest automotive innovations that reduce fuel consumption and noxious emissions, improve safety and riding comfort, and advance connectivity and driver assistance systems with the development of the self-driving car as the ultimate goal.

 

INTEGRATE. The social media revolution is bringing new types of players into the auto industry, integrating Silicon Valley with car design and manufacturing. Smart technology and new legislation trends aim for safety (zero accidents and zero fatalities), environmental protection and data protection, said Frank O’Brian, EVP for Asia of Magna International Inc. Canada. He added that one of the key aspects is how to bring the digital lifestyle into vehicle safely—with viability.

 

But China’s auto industry is constrained by environmental concerns and energy shortage as the country is dependent on imported fossil oil—60 percent of which is used for transportation.

 

The fact remains that China’s indigenous automakers are struggling to keep up with competitors like Volkswagen, General Motors, Ford and BMW. Information presented at GAF 2014 focused on this problem. The homegrown brands have steadily lost market share in the last 18 months with a new survey finding that more than 80 percent of Chinese consumers who expect to buy a car soon prefer foreign brands.

 

HOMEGROWN. Government agencies including local government units that have invested in the state-owned enterprises (SOEs) are doing what they can to assist the homegrown manufacturers.

 

The indigenous brands are given access to capital which has fueled China’s phenomenal expansion in the past 15 years. China uses subsidies and stimulus packages to spur the development and production of energy-efficient vehicles, rations parking stickers, and enforces antitrust laws to help support the indigenous brands and level the playing field.

 

In recent months, Beijing fined Western companies, including Mercedes-Benz, Audi and Fiat-Chrysler, $200 million for monopoly and anticompetitive practices.

 

The leaders of China’s domestic auto industry know that they have to improve the quality, safety, durability and performance of their own brands; reduce emissions and increase fuel efficiency; invest more on research and development; promote independent technology innovation; prioritize customer needs and aftersales service; recycle resources; build the infrastructure for new energy cars; apply green management covering the whole value chain; promote clean manufacturing; and combine traditional and modern technologies to produce smart products, new energy vehicles and breakthroughs in batteries, electric powertrains, electronic controls and on-board digital data. In other words, totally transform the auto industry.

 

In fact, China’s dream is to become the world’s Automotive Powerhouse in the future. Don’t laugh. After attending GAF 2014, I think China has the financial resources, numbers and determination to achieve all or at least some of the above. The only question is when.

 

 

 

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