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Opportunities and challenges for Chinese brands

In fact executives of large state-owned automobile groups are well aware of the future prospects of China’s automobile market. The world’s largest new automobile market is confronted with a solid yet slowed demand. The next 5-10 years, according to Zhu Fushou, president of Dongfeng Motor Corp., could be the last opportunity for Chinese automakers. They may either succeed or fail due to increased market competitions.

Zhu sees three conflicts or challenges in China’s auto market: multinational vs. Chinese brands; opportunities vs. road blocks for Chinese brands to go global; and market demand vs. environmental constraint. “Although the automobile is a strategic industry in China and demand is solid due to the low per-capita ownership level, the automotive sector does not need another overheated investment,” Zhu said. “Sustainability and social responsibility must be high on the agenda of automakers.”

“China has become the most competitive market in the world,” said Honda Motor chairman Fumihiko Ike in perfect English. “Global success requires China success.” Ike believes that as the world’s largest auto market, China would play a positive role for the healthy development of the global automobile industry.

“By 2020, China will be the world’s No. 1 passenger vehicle manufacturer with total sales reaching 20 million,” Ike said. “But faced with the challenges of energy resources and the environment, it is more important for Chinese manufacturers to focus on vehicle quality, safety and environmental friendliness than quantity. By so doing Chinese manufacturers would be able to better participate in global competition and global customers would better be able to accept cars made in China.”

Honda is introducing a new engine with “Earth Dreams Technology” that would meet China’s fuel consumption requirement of 5 liters per 100 km by 2020, according to Ike. Honda’s two JV factories in China will have a total capacity of 1 million units of hybrid cars in the next three years.

“Sustainability is the key,” said Ike. “With the growing volume, China can play a key role in automotive technology advancement.”

Zeng Qinghong, president of Guangzhou Automotive Industry Group (GAC), agrees with Dongfeng president Zhu Fushou that Chinese carmakers have limited time left, most likely until 2020, to secure their market positions. But he criticized the government for lacking an overall and coherent regulatory environment for the automotive industry. “The two automotive policies adopted in 1994 and 2004 no longer meet current market realities,” Zeng pointed out. “A new policy is long overdue but nobody knows when it will be adopted.”

The outspoken GAC president complains openly about the inconsistent and random nature of some of the government policies. “The central government wanted us to get involved in mergers and acquisitions. As soon as we did it we got into trouble,” he complained, referring to GAC’s problematic acquisition of Changfeng Motors, another state-owned automaker.

Addressing a question as to how China can build a strong automotive industry, Jack Hsin-Fa Wu, president of Dongfeng-Yulon Motor, sad that China must open up its market and create a stronger competitive environment. “How did Liu Xiang win the 110 meter hurdle race?” he asked. “Through direct and open competition with leading athletes in the world. Many Chinese enterprises are focusing on the China market. This is not enough. They should go out, either independently or together with their JV partners, to the global markets to learn and compete.”

Dongfeng-Yulon is a joint venture between Dongfeng Motor Corp. and Yulon Motor of Taiwan located in Xiaoshan of Hangzhou. Founded in 2010, Dongfeng-Yulon launched its mid-level Luxgen MPV last year and sold 31,000 units. Wu has served at Yulon for over 30 years and worked with Dongfeng as early as in the 1990s.

Dongfeng-Yulon plans to move into “unconventional” or “post-emerging markets” such as Russia in addition to selling in China, according to Wu. “We have no interest in looking at mature markets in Europe or North America, which are too risky for us,” Wu said. “Opportunities exist in smaller markets that may have potential for growth, such as markets in Central and South America and from Russia down to east and west Asia. Our goal is the optimization of our resources so as to play a big role in a small market instead of being a small potato in a big market.”

Guo Qian, chairman of Qoros Auto, believes that there are three approaches for a Chinese carmaker to try to catch up with international advanced levels of manufacturing. The first is to rely mainly on independent work and exploration. The second is to outsource international technologies. And the third is either to acquire a world-level carmaker or build a new manufacturing system up to the international level.

Qoros Auto, a 50:50 JV between China’s Chery Auto and Israel Corp., has assembled an entire team of top-level international talents with proven experience in their respective fields such as design and styling, powertrain, safety, supply chain management, assembly, sales and marketing, etc. “Wait until the launch of the Qoros 3 to see the real progress of a Chinese brand,” Guo told the audience.

The Qoros 3 Sedan had just achieved the highest ranking at the 2013 Euro NCAP collision tests. “In addition to safety, the levels of technology in all areas have met and caught up with international standards,” Guo said.

Geely Holding is benefiting from the technologies of its wholly-owned subsidiary Volvo Cars, according to Li Shufu, chairman of both Geely and Volvo. “Volvo Cars is owned 100 percent by us, including its technologies,” Li said. “But the relationship between Geely and Volvo is not farther and son, but rather brotherhood. Geely and Volvo will target different car segments. Geely will focus on family cars while Volvo will target luxury cars.”

Yeap Swee Chuan, chairman and CEO of Thailand’s AAPICO Hitecch Public Co., Ltd., a parts and components supplier, discussed about the Chinese presence in Thailand. SAIC Motor has purchased a piece of land planning to build a factory there. Other Chinese automakers, such as Foton, Great Wall, Chery, etc. are selling vehicles in the country.

But Chuan pointed out that “the Chinese OEMs are all in a hurry. The big country is in a hurry. You cannot build a brand in a hurry.” Chuan, a Thai with Chinese origin, told CBU/CAR that for both suppliers and OEMs, the key to success in building a brand in any market would be product quality and sufficient aftersales service.

For Chinese carmakers as well as multinational brands operating in China, a marked change in consumer behavior in the purchase of automobiles is the extensive use of the Internet, according to James Qin, CEO of Auto Home, a Chinese language consumer portal. “For automakers and dealers, a strategy to get ready to welcome the arrival of online automobile sales is a must,” Qin said in a panel on Chinese consumers. “In the future, online sales of automobiles may take up 50 percent of the retail market from the current less than 10 percent,” he said. “Based on our online study, I can predict that 100 percent of future visitors to 4S dealer stores in China would have surfed the Internet.”

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