Beijing Auto Show Preview: Chinese Aim to Rule Market

For every 1,000 people in China, 30 own a car. In the US, the figure is 700 or 800. Selling cars to the bicycling masses of China is a prospect to make any carmaker salivate.

Traffic jam, Beijing, China
AP
Traffic jam, Beijing, China

On Friday, car companies from distressed Detroit to stagnant Stuttgart will bring their best new models to the Beijing auto show, eager to grab a share of the world’s largest and fastest growing car market.

But for the first time, some of the most closely watched companies exhibiting there will be Chinese.

Of the 89 models making their debut at the show, 75 will be domestic Chinese brands.

It has been a watershed year for Chinese carmakers in which Geely, the private carmaker, bought Ford’s Volvo for $1.8bn, and General Motors failed to sell Hummer to a little-known Chinese buyer.

Now car market analysts are watching for the moment when car brand China comes of age.

That time has not yet come. Most Chinese carmakers are years behind their western counterparts in terms of quality, technology and service.

Their models are still mostly based on western or Japanese ones.

And while they are pleasingly cheap, the doors clang rather than clunk when you close them.

Last year, China’s car market grew 45 per cent. Chinese companies’ share of the market leapt from 21 per cent in 2004 to 32 per cent in 2009, according to Ivo Naumann of AlixPartners, the automotive advisers.

Chance to Shine for Home Brand

The Beijing Auto Show this week will be the first chance for the city’s own carmaker to show off the new line of vehicles it will sell under its own brand, Geoff Dyer reports.

Beijing Automotive Industry Corp (BAIC) will be displaying prototypes for the passenger cars it is developing in-house after acquiring vehicle platforms and other technologies last year from Saab for $200m.

BAIC has made a fine living in recent years from the booming Chinese market – profits last year soared 239 per cent. But it has done so largely from selling Hyundai and Daimler cars through joint ventures.

The Saab deal is BAIC’s bid to kick-start its own line of cars, which it hopes to begin selling next year. Following the model pioneered by Shanghai Auto when it acquired vehicle platforms from the UK’s Rover, BAIC intends to use the Saab technology as the basis for a new line of cars that will be modified for the Chinese market.

“We aim to be the elite among the domestic brands,” Wang Dazong, BAIC president, said in an interview with the Financial Times. One of the difficulties for BAIC is that the Saab technologies are relatively old – one of the three vehicle platforms has already stopped production. But Mr Wang said the engine and safety features of the models were still “very competitive” and could become the basis for a new line of cars.

BAIC is talking to Saab about further co-operation, potentially including purchasing, manufacturing, sales and marketing and alternative energy cars.
Mr Naumann says carmakers that previously had a limited range can now span the full spectrum, with the number of domestic models rising from 53 in 2006 to 159 last year.

By 2015, he expects Chinese carmakers to add another 5 percentage points to their share of a rapidly growing market.

Total vehicle sales rose 72 per cent in the first quarter of this year from the year earlier period.

Most analysts predict growth of 10-25 per cent this year, with double-digit growth for the foreseeable future.

Beijing hopes that by forcing its highly fragmented industry to consolidate, it can capitalise on that growth to propel one of China’s 25 or so carmakers to global superpower status within a decade.

And after a year of having been proved wrong with every forecast, few industry analysts are willing to bet against them.

They point to the fact that when China last year became the world’s largest car market, it got there 10 years early.

It had been expected to happen in 2020. GM recently announced that it would this year break the 2m sales barrier in China, four years ahead of schedule.

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The Beijing show will be saturated with new domestic models. Geely will bring 39, of which 11 are being shown for the first time. Chery will bring 29 and Great Wall will bring 10 new or refreshed models.

Klaus Paur of TNS Auto in Shanghai says: “We have an inflation of new models at these auto shows, but are they really ready to be mass produced?

“It is not so difficult to put a prototype in an auto show but it is a different matter to produce 50,000-100,000 cars with a level of quality that does not change with every car.”

Analysts and industry insiders used to say that it would take Chinese carmakers a generation to reach globally competitive status. Now they tend to say 10 years, or maybe five.

Bill Russo of Synergistics, the consultancy, says: “It took the Japanese decades, it took the Koreans a decade, it probably will take the Chinese less.

“One or two product cycles – in five-10 years – we will see Chinese branded cars in the mature markets.”

But he adds that selling value-priced cars to a generation of consumers who have never bought a car before “is a far step away from selling cars in a market that has been buying multinational branded vehicles for decades”.

China will continue looking for technology or even whole brands that it can pick up overseas – but not indiscriminately.

Beijing refused to allow Sichuan Tengzhong, a heavy equipment manufacturer, to buy Hummer recently. Geely’s purchase of Volvo has yet to prove its worth.

Mr Naumann says: “Geely has bought a company that is several times its size, that has been losing money for years and that has a limited presence in China. Geely will have its hands full figuring that out.”

In the meantime, Chinese original equipment manufacturers are snapping up foreign-trained talent, especially Chinese nationals who have worked for the overseas majors.

In Beijing, the opening of a motor show with decidedly Chinese characteristics – full of leggy models wearing bustieres of a sort that have fallen out of favour at more politically correct shows – underlines once again the shift in the centre of gravity of the global car industry to the east.

Chinese carmakers want to make sure that they – not GM and VW and other foreign original equipment manufacturers with a strong China presence – will benefit most from the new balance of power.