China's car makers ready to go global? (Agencis) Updated: 2005-04-17 12:44
After decades of riding global car makers' coat-tails and churning out clunky
cars few wanted, upstart Chinese firms are flexing their muscles, designing
sedans that are likely to engulf world markets.
Now, the likes of General Motors Corp. and Toyota Motor Corp. are getting
increasingly nervous about the country's vaunted export might, afraid that
automotive history -- a la Japan and South Korea -- might repeat itself.
Analysts and industry executives call for calm.
The Chinese must first deal with poor-quality perceptions -- as even Nissan
Motor Co. once had to -- the higher cost of making cars there, endemic
intellectual property theft and a serious lack of design savvy, they say.
"I'm not sure whether it will take 10, 20 or 30 years, but it's entirely
possible that in future we will see Chinese-badged cars being driven on the
streets of Japan," said Katsumi Nakamura, president of Nissan's Chinese venture.
"They are very ambitious."
Indeed, executives convening at next week's Shanghai auto show can expect to
be greeted by a flurry of activity from China's car makers: unveiling plans to
make own-branded products, pushing cars onto a saturated world market, marketing
blitzes.
Mainland car makers and foreign partners such as market leader Volkswagen AG
have unveiled plans to spend more than $15 billion tripling capacity to over 7
million cars by 2008, sparking fears of a glut.
If China fails to become the world's second-biggest car market by 2010, as
McKinsey & Co. predicts, the country could suddenly find itself saddled with
millions of unsold cars.
The idea of Geely or Shanghai Automotive Industry Corp, China's top car
maker, mimicking Toyota's or Hyundai Motor Co.'s success is keeping industry
chiefs up at night.
"If you have all this capacity, you'll have to consider going abroad," said
Yale Zhang at consultancy CSM. "This is the route all Chinese companies are
going to take, and car makers are no exception. Eventually the market will
become saturated."
FUELING FEARS
A market downturn is fueling fears. After nearly doubling in 2003, car sales
growth braked to just 15 percent in 2004 and should grow at an even slower pace
in 2005.
At the forefront of the burgeoning export push are two companies -- Geely,
based in the eastern private enterprise hotbed of Zhejiang, and Chery Automobile
Co., accused by GM of copying one of its cars -- a charge it denied.
Li Shufu, Geely's ever-ebullient chairman, wants to sell two-thirds of output
overseas, though he is coy on when that could happen. Geely hopes to produce
650,000 cars a year by 2007.
"We must make cars like people from Wenzhou make lighters," Li told a forum
in Beijing last month, referring to the city where a quarter of the world's
lighters are made.
"But developing a car industry is like growing one tree slowly to cover a
whole forest."
China is a sapling where cars are concerned: the world's seventh-largest
economy exported fewer than 50,000 cars in 2004, mainly to the Middle East and
Africa. Now the focus is shifting to the United States, the world's largest auto
market.
Malcolm Bricklin, the entrepreneur who introduced the Yugo to Americans in
the 1980s, plans to sell 250,000 Chery vehicles in the first year starting 2007,
undercutting by 30 percent the prices of competing U.S.-made models.
And Dutch rally driver and car dealer Peter Bijvelds wants to sell about
2,000 of the first Chinese cars in Europe this year -- Landwind SUVs made by a
unit of Jiangling Motors, itself a partner of Ford Motor Co. -- at almost half
the price of their nearest comparable competitor.
Far-fetched? Perhaps not.
Toyota, now the world's second-largest car maker, got off to a troubled start
in the United States in the 1960s, and the Koreans' offerings were widely
ridiculed in the 1980s.
"If 10 years ago you asked whether Toyota was going to be as successful in
the U.S. as it is today, many people would have been skeptical," said Clive
Saunderson, an Ernst & Young partner.
"U.S. car companies are today under threat in their own backyards from the
likes of Toyota. Why shouldn't Chinese car companies be able to do the same
thing?"
LEAP OF FAITH
Others point out a lack of research and development skills.
"What they can copy is the appearance. They cannot copy the inside
technology, like the engine and transmission," said Chuan Tang, an analyst at
KGI Securities.
Poor logistics and the expense of using imported parts also raises the cost
of car making in China. It costs some $10,000 more to buy a Chinese-made Buick
Regal compared to the United States.
Finally, persuading Europeans and Americans to buy cars made in China, a
country known more for shoes, textiles and cheap electronics that have flooded
Western markets in recent years, could require a leap of faith.
"Passenger vehicles are not like PCs in that design, brand and other
value-added factors weigh heavily in a buyer's purchasing decision," said
Nissan's Nakamura.
"If we're just talking about whether (the Chinese) will be able to build
vehicles that can transport people, they'll go a long way. But when it comes to
building up a brand, it's going to take a long time."
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