Executives from local Chinese and multinational carmakers agree that competition in the world’s second largest auto market has become one of the fiercest in the world.
They came to this agreement during CBU’s 13th annual international conference – the 2008 Presidents’ Forum held on April 16-18 in Beijing to discuss Automotive Manufacturing in China: OEM & Supplier Strategies in the Next Decade.
China sold 8.8 million automobiles last year, realizing a double-digit growth for six consecutive years since 2001. Total sales are expected to exceed 10 million units in 2008. With such phenomenal growth, many multinational automakers have set up assembly plants in China plus scores of new local Chinese players have also joined the competition.
Different automakers have taken different approaches in their efforts to enhance their competitiveness and win over customers. Senior executives from State-owned Fujian Motor, private Great Wall Motor, French PSA Peugeot-Citroën and the joint venture Beijing-Hyundai discussed their operational experiences during a panel discussion on “Core Competitiveness of JV and Local Brands in China”.
Survival and growth through cooperation
“Fujian Motor has grown over the past 10 years from a small-scale to a sizeable operation thanks to our cross-strait cooperation with Taiwan’s China Motor and international cooperation with leading multinational carmakers such as Daimler, Chrysler and Mitsubishi,” said Ling Yuzhang, chairman of Fujian Motor Industry Group Corp.
Located in Fuzhou, capital of southeast China’s Fujian Province across the Taiwan Strait, the small provincial level State-owned automaker took full advantage of its geographical location in setting up a 50:50 joint venture with Taiwan’s China Motor to make 7-11 seat light vans in 1995. By 2003, Southeast Motor realized annual sales of 83,000 units.
In 2006, Mitsubishi Motor, China Motor’s partner took over 25 percent equity share from China Motor in Southeast Motor and the company started assembling the Mitsubishi Lioncel (Lancer).
In 2007 Chrysler and Southeast Motor signed a technology transfer agreement for the latter to assemble the Chrysler Grand Voyager and Dodge Caravan. In the same year, Fujian Motor signed an agreement with Daimler to set up the Fujian Daimler Automotive Co., Ltd. (FJDA) to produce the Benz light bus. Production is scheduled to begin in mid-2009.
(photo: Fujian Motor chairman Ling Yuzhang)
“Our past experience shows that we have chosen the right path in trying to develop Fujian’s automobile industry through international cooperation,” Lin told the conference.
“As a small-scale local automaker, we should be a student first and learn from experienced multinationals in auto manufacturing before we can venture into developing independent brands,” Lin said. “You are welcome to visit our stand at the upcoming Auto China 2008 here in Beijing to find out what we have accomplished.”
At the biennale Beijing international auto show, which opened on April 20, Southeast Motor unveiled three independent models: the Dongnan V3 sedan, the Dongnan V5 concept and the Dongnan X1 hybrid coupe concept. The V3 is expected to hit the market in the second half of this year.
“Southeast Motor will continue to cooperate with overseas partners while trying to develop our own brands,” said Ling, who is also chairman of the joint venture company. “This will be our strategy for the next decade.”
Quality and branding
“It is time for Chinese independent automakers to stress on quality and branding,” said Wang Fengying, president of Great Wall Motor Co., Ltd., one of China’s leading independent automakers.
Wang told attendees of the 2008 Presidents’ Forum that most independent Chinese automakers have been trying to expand in scale in recent years, and thus few attached any importance to product quality and brand building. Low cost remains one of the most frequently employed competitive means for many when they try to export to international markets.
(photo: Great Wall Motor president Wang Fengying)
“Great Wall has been No. 1 among Chinese brands in both export volume and value for four consecutive years since 2004,” Wang said. “Our growing sales and reputation in international markets depend on product quality. Our goal by 2010 is to become a top-quality Chinese vehicle manufacturer in the international market. The three words that best describe our product positioning are quality, quality and quality!”
At a press conference on April 20 when Auto China 2008 opened to the media, Wang announced that the goal of her company is “to make top-quality pickups, SUVs and small cars with innovative technology,” not low-cost, low-quality vehicles. “We must aim high and develop vehicles for the global market,” she said.
Publicly listed at the Hong Kong Stock Exchange, Baoding-based Great Wall Motor is China’s largest pickup and SUV manufacturer and exports to over 60 countries. Last year, Great Wall sold 57,800 units of its CUV Hover alone, up 99.29 percent from the previous year. The company moved into passenger vehicle production last year when it completed construction of a modern assembly plant with an annual capacity of 200,000 units. Currently the company produces the sub-compact GW Peri, Florid and Cool Bear cars and the Cowry MPV.
Multinational carmakers are also confronted with the same issues like the State-owned and private automakers, of how to play out their core competitiveness in the expanding China market.
“PSA Peugeot-Citroën attaches great importance to the China market and we established a special China Business Unit last year,” said Patrick Blain, marketing and product planning director of PSA Peugeot-Citroën China at CBU’s conference. Blain was speaking on behalf of Claude Vajsman, PSA Peugeot-Citroën China CEO who was traveling overseas.
(photo: PSA Peugeot-Citroën Patrick Blain)
According to Blain, the Chinese market is unique and Chinese consumers are different from their European counterparts. “By analysis we found that Europeans, especially the French, pay equal attention to styling and the powertrain of an automobile. In China, however, consumers usually put top priority on styling and they are also quite critical about interior trims and comfort,” said Blain.
“While marketing in China we realized that ‘romance’ is synonymous with anything French and the styling of the Peugeot and Citroën cars are perceived by the Chinese consumer as ‘romantic’,” said Blain.
But Blain emphasized that PSA Peugeot-Citroën still has to try its best to meet Chinese consumers’ expectations and practical needs. “We need to combine French romance with local Chinese aesthetics in design,” he said. “On a basic level there may not be any major difference between the perceptions of a Chinese or European consumer, but there are many essential details that need attention to meet the expectations of the Chinese consumer.”
PSA Peugeot-Citroën China now has marketing and product teams based in Beijing and a styling team to be put together soon in Shanghai. The French automaker has one-third French employees and two-thirds Chinese in China.
The French company has a subsidiary, Dongfeng-Peugeot-Citroën Automobile, a 50:50 JV with Dongfeng Motor Corp. founded in 1992. The JV has two factories, one in Wuhan and the other in Xiangfan, both in Central China’s Hubei Province, which assemble Citroën and Peugeot brand vehicles. Employing about 9,000 people, the Sino-French company plans to sell 300,000 vehicles in 2008 and 450,000 in 2009.
Korean brand power
Unlike PSA Peugeot-Citroën’s emphasis on highlighting French romance in styling, Beijing-Hyundai feels the need to improve brand power in addition to optimizing interior production organization.
“Beijing-Hyundai adopts a lean production system and we have a strong competitiveness in internal production organization,” said Jae Man Noh, president of Beijing-Hyundai at the CBU conference. But Noh admitted that organizational competitiveness is not enough.
(photo: Beijing-Hyundai president J. M. Noh)
“Although we also have external competitiveness such as pricing and quality,” Noh said, “we need to improve in both service and brand power. Beijing-Hyundai lacks efforts in persuading consumers about the quality and brand value of our products. We realize that we have much to do in the area of marketing, brand management and promotion, dealer training, etc.”
Beijing-Hyundai was founded in 2002 as a 50:50 equity joint venture between the Beijing Automotive Industry (Holding) Corp. and Hyundai Motor. In little over four years since its founding, Beijing-Hyundai sold a total of 800,000 cars as of June 2007, which was called “Hyundai speed”, considered as a miracle for a joint venture in China. But sales demand last year declined significantly forcing the company to twice reduce its sales target from 310,000 units to 290,000 and then to 260,000 only. With the completion of the joint venture’s 2nd assembly plant in Beijing, the company faces a challenge of how to utilize its total capacity of 600,000 units.
Facing a dynamic, diversified but complicated China market, automakers of different backgrounds must position themselves in such a way so as to be able to bring out their core competitiveness, according to the panelists. They must strive to understand this market as well as Chinese consumers and offer quality products with advanced technology at an affordable cost.