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Discussion Starter · #1 · (Edited)
An insightful writing about problems and opportunities of Chinese automakers.


A global road map for China’s automakers


http://www.businessdayonline.com/economic-watch/business-intelligence/12748.html

The impressive domestic inroads of Chery, Geely, and other domestic automakers in China are fueling the global aspirations of its OEMs.
Yet significant shortcomings, including insufficient quality- and talent-management approaches, as well as a lack of strategic focus, could hinder the realization of the industry’s significant global potential.

China’s OEMs should reexamine their plans for entering overseas markets and meanwhile study ways to improve their pricing and margins by repositioning brands around value, not just low prices. Moreover, China’s automakers must push their quality improvement efforts further upstream, bolster their management teams with global talent, and explore ways to encourage greater cross-functional collaboration.

A decade of astonishing growth has catapulted China past Germany and Japan to become the world’s second-largest market for automobiles, trailing only the United States. Global OEMs such as GM, Toyota Motor, and Volkswagen still command the lion’s share of sales in China. Nonetheless, the impressive inroads of homegrown upstarts such as Chery and Geely in the local market are fueling a desire among China’s OEMs to become not only domestic but also global competitors—aspirations encouraged by the government. Such ambitions aren’t far fetched: as recently as 2004, China was a net importer of automobiles; in 2005, the country became a net exporter, and in 2007 it exported over half a million cars and trucks, the majority of them Chinese-branded vehicles shipped to developing markets around the world.

Our experience working with Chinese OEMs suggests that many of these problems have operational roots. But there are other issues, too. Some OEMs, in their zeal togo global, fail to prioritize target markets sufficiently and therefore divert precious management attention away from product quality. Some embark on ambitious globalization plans before establishing strong market positions at home and so fail to take advantage of the important learning opportunities available there. And some don’t pay enough attention to marketing and distribution—even outsourcing these activities to local partners (see sidebar, "Beyond production"). Such quick-and-dirty approaches risk permanently damaging brands.

Further, organizational shortcomings can short-circuit operational processes and thus raise costs and lower quality. One Chinese carmaker we studied, for instance, had a seemingly robust and well-documented quality-gate system to catch defects during product development. Although the system detected problems adequately, many errors went unfixed, largely because of poor collaboration within the company and intense pressure on engineers to deliver products quickly.
 

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A Growth Model for China Automakers


September 3, 2008


Acquiring foreign brands is not the best road for mainland car companies. They should travel the slow and steady path


In July, a rumor circulated in the Chinese and Western business media that Chery Automobile was considering purchasing Ford's (F) Volvo luxury car division for more than $4 billion (BusinessWeek.com, 7/7/08). In August, a second rumor went around that another Chinese automaker—Guangzhou Automotive—was interested in Volvo.

I don't know if Volvo is worth $4 billion. (With Ford announcing on Sept. 2 the appointment of Stephen Odell, chief operating officer for Ford Europe, as Volvo's new chief executive, the U.S. company doesn't appear to be interested in selling right now.) What I do know is that based on recent history, I would recommend that Chery, Guangzhou Automotive, or any Chinese automaker eyeballing an acquisition of a foreign automotive brand rethink its strategy. Let's consider what has happened with some major automotive acquisitions over the past 20-30 years:

Ford
Ford bought Jaguar in 1989 (spending $2.5 billion) and Land Rover (another $2.5 billion in 2000), both venerable brands with rich automotive histories. But in May 2008, Ford sold both to India's Tata Motors (BusinessWeek.com, 3/26/08) (TTM) for half their combined purchase price after piling up billions of dollars in operational losses over the interceding years. Now Ford is reportedly trying to offload Volvo for $4.4 billion, though it acquired the Swedish automaker for $6.4 billion in 1999.

General Motors
General Motors (GM) was equally busy buying up initial stakes—and then increasing them—in foreign automakers. GM first bought into Isuzu in 1971, then Suzuki in 1981, Saab in 1989, Subaru in 1999, and Fiat in 2000. Today, GM has sold off or decreased its interest in all of these investments (except the ailing Saab, which no one will touch). While precise figures are not available, the struggling Saab is believed to have cost the company billions in operational losses, while the damage for its dalliance with Fiat is estimated at $4.4 billion.

BMW
Germany's BMW (BMWG.DE) bought Britain's Rover Group in 1994 for roughly $1.3 billion. After six years of massive losses—including an estimated combined loss of $3 billion between 1998 and 1999—BMW broke up the group in 2000 and sold it off in pieces.

Daimler
In perhaps the industry's greatest missteps, Daimler acquired a controlling interest or stake in Chrysler, Hyundai Motor, and Mitsubishi Motors over the last decade. All those ventures stalled quickly, and Daimler has subsequently sold off or pulled out of the majority of its interests in the companies. Total accumulated losses are figured to be in the range of $35 billion to $40 billion, and that doesn't include lost time and diluted resources.

Now, the above are some of the oldest and most venerated companies in the automotive industry.

If they can't make an acquisition work, what makes us think that a Chinese automaker—most likely founded less than 10 years ago—can do any better?

The answer, most likely, is that it can't.


The problem is it is extremely difficult—nearly impossible, in fact—for one manufacturer to take over another car company and make it work. Companies' cultures, processes, people, and personalities are just too different. They have different histories, different values, and a different world view. To get the two cultures to work together in a constructive manner is often a Sisyphean endeavor.

Japanese Model for Growth
Yes, a successful acquisition can be achieved, as is the case with Renault's (RENA.PA) turnaround of a debt-ridden and moribund Nissan (NSANY). But this is the exception, rather than the rule. It required the steady hand of Carlos Ghosn—himself a force of nature—to steer Nissan out of trouble.

Instead of acquisition, Chinese automakers might be better served to follow the Japanese model for growth. While Western automakers were busy buying up various companies in the last 20 years, how many major acquisitions did Japan's Big Three—Toyota (TM), Nissan, and Honda (HMC)—make? The answer is zero. None. (Toyota did buy 5% and 10% stakes in Subaru (7270.T) and Isuzu (7202.T)—from GM—in 2005 and 2006. But each investment was only about $350 million.) Instead of trying to leapfrog the competition, Japanese automakers rolled up their sleeves, and did the heavy lifting of developing their own products, manufacturing facilities, supply bases, distribution networks, dealer networks, etc.

Results Speak for Themselves
Successful Japanese automakers initially concentrated on two or three core products, making sure that their quality, durability, and ease of use were market-leading. For its core offerings, Toyota launched with Corolla and Camry; Honda launched with Civic and Accord; and Nissan went to market with the Sentra and Maxima (and later added the Altima). These products are still their core today, and among the leaders in their segments. Later they began to add complementary vehicles, like SUVs, minivans, pickups and crossover vehicles. And when Japanese automakers wanted to move upscale, they didn't buy another brand. They developed Lexus, Acura, and Infiniti.

This approach is not particularly awe-inspiring, and is not necessarily quick. But the results—in the China market and globally—speak for themselves. If the experience of Western automakers serves as any indication, the best choice for Chinese automakers may be the slow and steady path.

Timothy Dunne is director of Asia-Pacific market intelligence at J.D. Power & Associates in Westlake Village, Calif. (J.D. Power, like BusinessWeek, is owned by The McGraw-Hill Companies.) Dunne has 18 years of experience in the global automotive industry, and worked in China and Southeast Asia from 1994 to 2006.

http://www.businessweek.com/globalbiz/content/sep2008/gb2008093_216578_page_2.htm
 

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too bad ford was sold to tata motors, hope that the company (ford) will rise again from the ashes soon, love their cars though...
 

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Umm...Ford is still Ford Motors of Detroit. They're not sold off to anybody. Ford did sell Jaguar and Land Rover to India's Tata Motors in Mar.'08.

One thing to note in GM's dealings is this: One of the really smart moves made by GM was their 2002 buyout of S.Korea's Daewoo Motors. This enabled GM to gain a foothold in to the Asian car-selling market, which may just be the ticket that saves them overall. Very smart move and coming in the nick of time for them. The move helped some former Daewoo workers stay employed and utilized some good carmaking facilities in South Korea, too. Just a roving FYI point there.
 
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