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Global carmakers gearing up
By Wang Yu (China Business Weekly)
Updated: 2004-06-15 11:17

In global car manufacturers' eyes, the Chinese automotive market is a gold mine, despite the bumps on the road.

Regardless of choked domestic car sales growth in April and May, global auto giants simultaneously unveiled their dazzling gearing-up plans for the world's largest potential market last week as the red-hot Beijing international car show (Auto China 2004) raised its curtain.

Ford Motor Co (Ford) aims to more than triple output in China this year, while Japan's Mazda Motor Corp, one-third owned by Ford, is looking to tripling sales in China over the next four years and also start production in China.

General Motors Corp (GM), the world's top car maker, announced plans to pour US$3 billion into China over the next three years to more than double its production capacity.

PSA Peugeot Citroen, DaimlerChrysler AG and Hyundai Motor expect to either bring new models to China or localize production here, and expand capacity and sales in the local market.

And there are many others to follow.

"Under the current circumstances, that the growth of the world's other markets are flat or even shrinking, it is quite natural for major auto makers to resort to the fledgling but promising China market to seek bigger market share globally. From this perspective, the China market is their 'last straw'," Jia Xinguang, an analyst at the China National Automotive Industry Consulting and Development Corp (CNAICDC), told China Business

Weekly..

Market still leaves bumps on the road

"On the other side of the coin, I do not suppose that their ambitious future expansion plans are driving blind. Even if there is over-capacity or overheating in the auto sector, I do not think this situation applies to foreign makers. Their reinvestment plans are surely based on the fact they did make money from previous moves, and they just want to earn more by reinvesting," Jia said.

The senior auto analyst said that, in this sense, foreign investors were obviously different from their Chinese counterparts, especially those with local government support, which lacked in-depth feasibility analysis and investigation when making decisions.

"That is why the local auto manufacturing market is so fragmented that the central authority has to figure out ways to consolidate it," Jia said.

The auto giants' strong confidence and various aggressive expansion plans in the Chinese market are in stark contrast to the slowed down sales growth in May. According to industry executives and analysts, sales fell off considerably from the previous month, though official figures have yet to be released.

But it seems that everything is in control in investors' hands.

"Although the Chinese auto marker is not driving forward at a dazzling 40 per cent-odd growth speed like last year, a decent 10 per cent or so per year increase can still be maintained for the foreseeable future. Therefore, I do not think it is time to panic, since we are still right on track," Phil Murtaugh, chairman and chief executive officer of GM China Group, told a high-profile auto seminar co-hosted by China Business Update and Beijing Automotive Industry Holding Co and supported by China Business Weekly, last week.

"I believe that May was just a bump on the road and we're going to see long-term, continued growth in the auto industry," Murtaugh said.

According to GM China's chief,various factors contributed to choked growth margins during the last two months, including the Chinese central government's macroeconomics control over some over-heated sectors, such as steel and cement, sluggish auto financing business and auto makers' frequent price structuring with which GM is also associated.

"Moves taken by both Chinese Government and enterprises to either cool the over-heated sectors or to cut prices of vehicles have a knock-on effect on car sales and create doubt in consumers' minds and they just adopt a wait-and-see attitude. Consumers are also holding back in anticipating how prices would be affected by the launch of 30 to 40 new cars at the auto show. Also as auto financing dries up, slowed sales growth would be unavoidable," Murtaugh said.

"But I'm expecting that by the end of June we'll see a lot more people coming back into the market because demand is always there," he said, hot on the heels of announcing a further US$3 billion investment in China.

Big moves

Multinationals have unveiled plans to pump some US$13 billion to produce 6 million cars annually in China, thus prompting fears of a margin-sapping glut.

Prices have been falling for the past three years, with some analysts expecting them to fall another 10 per cent this year.

Yet with only eight vehicles per 1,000 people of driving age in China, compared with 122 in Brazil and 940 in the United States, leading auto makers are convinced that there is still room for development.

United States-based Ford pledged to more than triple output in China this year, as it races to catch up with General Motors and other foreign manufacturers in China's market.

The firm plans to make 65,000 vehicles in China in 2004, less than one per cent of its global production and about a tenth of arch-rival GM's output in the country.

Mazda looks forward to selling more than its 37.5 per cent cars in China this year, or 110,000 units -- almost double that which parent Ford is expecting to off load in the country in 2004.

The world's top auto maker GM will spend US$3 billion to double output in China to 1.3 million units by 2007. Rival Toyota aims to make up to 400,000 cars here by 2010.

European auto giants are also targeting the local market.

DaimlerChrysler will start making Mercedes cars in China in the middle of next year, which would help it reach a mid-term goal of more than tripling the brand's sales in the world's fastest-growing market.

Daimler was on track to selling 14,000 luxury cars in China this year, up by about half from last year, Mercedes Vice President of Sales Joachim Schmidt said last week.

Seven years after pulling out of China in frustration, French car maker Peugeot is ready to roll back in with locally made sedans to try and win a slice of the market.

To export

Global car makers are eyeing China as not only a weight-carrying market but also a world-class production base.

Volkswagen AG said last week it would start building a US$240-million auto plant in Shanghai that will focus on exports, with initial capacity to make 150,000 cars a year. The plant should be completed in two to three years and will underpin the company's export drive.

"It is the latest European strategy to take full advantage of China's new auto policy. But what is produced in China may only be sold to nearby markets," Jia said.

Jia said he did not expect similar moves from other foreign giants, since most of them are treating China as a gold rush, rather than to produce.

"They have planned well in other markets outside China, and they will not change China's role easily," Jia said.

Murtaugh said that GM does not intend to follow Volkswagen's suit in short term, saying its recent priority was to enhance capacity to satisfy domestic demand.

Agreeing with Jia, Li Qing, general manager of the CNAICDC, said that if China wants to be a major auto export centre, it must start from the very beginning -- to enhance auto parts quality and export parts at first.

According to the new automotive industry policy paper, multinationals can still only own half a joint venture. But foreign investors will be allowed to control stakes of more than 50 per cent in automobile and motorcycle joint ventures with Chinese partners "if their joint ventures are built in China's export processing zones and aim at overseas markets."

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