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Private automakers more promising than state-owned

by Yu Mo

Now that China’s largest automotive trade event, Auto China 2012, is over, what did we find out about the future prospects of OEM exhibitors? The size of an exhibitor stand may be huge, but that does not necessarily represent its future. It only means that it has money to spend now.

There are basically two types of automobile manufacturers in China today, state-owned and private. Joint venture manufacturers and the so-called JV brands are not relavent to my discussion here.

I believe that of the two types of automobile enterprises, private automakers are more promising than state-owned. The future competitiveness of Sino-foreign joint ventures depends on who has control. If the state-owned company is in control, then the future prospect is questionable. If the foreign partner is in control, prospects may be better.

What has led to my conclusion? Fundamentally we must find out what is on the mind of the top executive of an automaker, or what his most important concern is. CEOs of state-owned automakers are most invested in their personal careers, whereas private CEOs are most concerned about the future of their enterprises.

People may argue that one’s personal career is closely tied to the future of his or her enterprise, whether that enterprise is state-owned or private. But the fact is that for most top executives at state-owned enterprises, their tenure is granted from above and limited to a few years. They may perform well and as a result get promoted. But their success overdraw enterprise resources, leaving hidden problems for their successors.

Large state-owned automobile groups have enjoyed robust sales and profit in recent years. They were therefore able to afford spacious exhibiting stands to showcase attractive numbers of upscale new launches at Auto China 2012. FAW brought out the Red Flag H7 and Besturn B90, BAIC displayed its C70G and SAIC the Roewe 950.

At first sight these vehicles seemed to be proof of the rising manufacturing level of large state-owned enterprises. But looking closely you would find that these vehicles are all based on foreign technologies: H7 on the Toyota Crown, B90 on the new Mazda 6, C70G on the Saab and Roewe on the Buick Regal. The interior and exterior trims have also been contract designed and engineered by overseas companies. To put it simply: these so-called independent car models have been put together with piles of cash. I can hardly share the opinion that they represent a “new level of achievement of the Chinese automobile industry.”

State-owned automaker, Chang’an Group, boasted the largest space at the auto show and the most number of vehicles on display. These include the Eado, CS35, Yuexiang V5 and V3, Raeton, etc., which are either newly launched or to be launched soon. For over two years Chang’an has been building capacity in China getting ready to launch a series of new vehicle products today. But a closer look at the vehicles may shock visitors, who will learn that except perhaps the Eado, all the other new models show obvious traces of copying. Chang’an is too eager to launch too many new vehicles and has forgotten about vehicle quality.

Chery, China’s leading independent carmaker, displayed no new launches except the TX concept, a well- designed SUV model. I was rather disappointed to find that the recently launched Cowin 5 as well as the New Eastar are still roughly designed and assembled. If Chery is unable to reinvent itself, it may soon lose its leading position among independent brands in China.

What about private carmaker Geely? Its Gleagle GX7 did not meet expectations, especially given the cheap feel of its interior materials, and too much plastic. However, Geely’s Emgrand seems to have fared extremely well so far. It sold 100,000 units last year, mostly the A-class EC7. The Emgrand is now an established brand for Geely, giving it much hope for the future. In comparison, Chery’s Riich, which was launched about the same time as the Emgrand, is quite problematic now.

BYD Auto displayed the plug-in hybrid Qin, an obvious compromise between both government policy and market demand as the company’s focus on battery electric vehicles did not make much progress. Chairman Wang Chuanfu has an engineering background and I believe that he has a better shot of taking BYD Auto into the future.

What about joint venture companies? JVs are formed by Chinese and foreign automakers but sell foreign brands. To me JVs are nothing more than profit-generating tools and their performance has nothing to do with the strength of the Chinese auto industry, even though many of us treat them as part of that industry, revealing our own biases.

(Based on author’s blog on auto.sohu.com)

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