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Discussion Starter #1 (Edited)
KEITH BRADSHER
November 18. 2006 6:06AM

SOURCE: The New York Times

The Chinese automobile market still may not be big enough to support homegrown manufacturers and foreign automakers.
TAIZHOU, China — China is passing Japan as the world’s second-largest vehicle market this year, with sales soaring for cars of every size and shape. But the Chinese market still may not be big enough to support all the homegrown manufacturers as well as the foreign automakers trying to do business here.

China has more car brands now than the United States, as companies like Fiat and PSA Peugeot Citroën compete with General Motors, Ford, DaimlerChrysler, Toyota and Nissan in joint ventures with Chinese companies. But while car sales have climbed 38 percent in the first three quarters of this year, automakers have increased their output even faster, causing fierce competition and a slow erosion in prices, with further price cuts this autumn for top-selling models like the Buick Excelle and Hyundai Elantra.

As top executives of the world’s multinational automakers fly to Beijing for the auto show that will open there on Nov. 19, they are particularly watching the growing competitiveness of Chinese manufacturers, who have been steadily gaining market share over the last several years and are expected to continue doing so. Some of the biggest winners in the Chinese market have been little-known Chinese automakers that have grown up in even lesser-known Chinese cities, like Geely here in Taizhou, Chery in Wuhu and Hafei in Harbin.

These low-cost Chinese automakers do not yet have the marketing muscle, brand names and global distribution to compete on their own in the United States and other industrialized countries. They are only starting to form international alliances to do so. Geely, for example, has just set up a joint venture with a British company to make the famous boxy London taxis in Shanghai for markets around the world, while Chery is working out the details of a deal with DaimlerChrysler to make subcompacts in Wuhu for the American market.

But in their home market, Chinese automakers are proving increasingly formidable competitors. After practically disappearing before an onslaught of foreign-dominated joint ventures in the 1990s, Chinese brands have recovered and now hold 26.3 percent of their domestic market.

To gain market share, Chinese automakers have become masters at controlling costs and holding down prices. Some of the savings, particularly in the 1990s, have come by imitating and even copying Western designs, resulting in a series of lawsuits, but most of the savings have come from inexpensive labor at every stage in the production process. Cost controls have become increasingly important as the original heart of the Chinese market — selling luxury sedans to state-owned companies and wealthy families — has been far surpassed by the sale of affordable compacts and subcompacts, with no sign this trend will stop.

“The demand will tend to shift toward fuel-efficient and middle-class vehicles,” said Xu Ping, the chairman of Dongfeng Motor, a large Chinese automaker.

The overall Chinese vehicle market is on course to reach 6.8 million vehicles this year, more than the Japanese market, although a larger share of the Chinese market consists of small commercial trucks. Automotive Resources Asia, acquired this autumn by J. D. Power & Associates, says that sales of cars, minivans and sport utility vehicles will reach $74 billion this year, up from $55 billion last year. It forecast that sales of these vehicles in China will roar past such sales in Japan next year.

By comparison, the United States is on track for sales of almost 16.7 million cars and light trucks this year, and total sales in the 18 countries of Western and Central Europe are, coincidentally, expected to be 16.7 million.

Offering inexpensive deals is crucial in China’s burgeoning market because brand loyalty is rare. J. D. Power recently found that 80 percent of Chinese car buyers were purchasing their first vehicle, compared with under 15 percent in the United States, Europe and Japan.

Before China entered the World Trade Organization in November 2001, China had some of the world’s highest car prices. Domestic automakers and joint ventures hid behind steep tariffs that nearly doubled the price of imported cars.

Falling tariffs and a plethora of new models and new car factories in China have brought prices down to international levels for well-known, globally traded models like the Honda Accord. Domestic Chinese brands sell even cheaper models, including $6,000 subcompacts and $15,000 midsize cars — still too costly for the large majority of China’s 1.3 billion people, but affordable for the rapidly growing middle class.

Some of the best examples of Chinese cost efficiencies can be found at Geely (pronounced JEE-lee), the only large Chinese automaker that is not partly owned by a government agency and has not gotten its start with the benefit of lavish loans from state-owned banks.

“We do not belong to any government,” said Li Shufu, the company’s chairman and controlling shareholder. “This may not be bad. We had to fight on our own, and we became the most competitive in China.”

Geely, with 5 percent of the fast-growing Chinese market, is the country’s second-largest home-grown automaker, trailing Chery, a state-owned company with 7 percent. Volkswagen, General Motors, Honda and Hyundai are ahead of both of them, and Toyota has 6 percent of the market.

Geely’s cost advantage over multinationals starts with developing new vehicles. Freshly hired from universities, the company’s engineers earn $4,600 to $7,600 a year, with few costly benefits.

Even if Geely sets up an overseas factory someday to be closer to customers, “the research and development will still be done here and costs less,” said Yu Xueliang, Geely’s vice president for domestic manufacturing.

The next advantage lies in labor costs — not just at the assembly plant but at nearby parts factories as well. For starters, most of the workers are in their early 20s. They are young enough to be the children of the typical Big Three worker in the United States, and with low medical costs to match.

Wages are low, but so are living costs here in this port in southeastern China, where the Geely factory sits near the base of a steep-sided hill topped by several temples. Zhang Jiahong, 22, earns $250 a month as a quality-control inspector and repairman at the end of the assembly line here. But his 320-square-foot studio apartment in town costs $20 a month, a common price for a spartan home in a Chinese city far from costlier metropolises like Shanghai or Beijing.

He eats two large meals a day at the factory canteen for $40 to $55 a month. The company gave him a free Motorola phone with a built-in color camera and charges him $2.50 a month for basic service. “I’ve loved cars since I was very young — there was a car factory near where I grew up and I played there as a boy,” he said.

Geely has also adopted Japanese and Western techniques for controlling inventory costs. Auto parts are delivered regularly in small, plastic bins and few backlogs were visible during recent visits to the company’s factories in Taizhou and Ningbo, a three-hour drive to the north.

By contrast, huge loans from state-owned banks have left many state-owned automakers with less incentive to be efficient. Periodic shortages and price increases for steel and other raw materials give automakers an incentive to hoard parts.

But the result is that large inventories of spare parts are common in many state-owned Chinese auto factories. The extra parts not only take up costly floor space but also hurt quality — when a problem is discovered in a part, it may take a long time before improved parts are ordered as replacements.

Despite being firmly in the private sector, Geely goes to considerable lengths to stay on good terms with the Communist Party. The most productive workers are invited to join the party, including Mr. Zhang, and have a red flag with a yellow hammer and sickle flying above their work stations on the assembly line here.

Trade barriers among provinces within China have hobbled Geely’s efficiency and cost controls to some extent, however. Mr. Li, the entrepreneurial son of a Taizhou farmer, said that a few years ago, when a taxi company in Tianjin bought Geely cars instead of Xiali cars produced in that city, local officials were so angry that they ordered an investigation into who had approved the purchase and barred taxi companies in the city from buying any more Geelys.

The taxi market is so large in China — many people still cannot afford their own cars — that Geely is now building three small assembly plants in locations as remote as Lanzhou in western China’s Gansu Province. The goal is to make sure that local taxi companies will be allowed to buy Geely products. But scattering assembly plants across wide areas tends to drive up costs.

Many Chinese automakers are soaking up a lot of technical know-how through joint ventures and some are buying technology outright, like Nanjing Automobile. But many Chinese executives complain that Western companies do not transfer their latest designs, and the Chinese are starting to step up their own research and development spending.

“If you want to get the best technology,” Mr. Li said, “DaimlerChrysler and BMW won’t sell it to you, you have to do it from scratch.”
 

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This is so obvious.

Everybody can see that there are too many manufacturers in China.

Too many companies is probably good for the customers in the short term but it'll keep profits and most likely quality low and after all the fighting, the weakened but best of these companies will be taken over by much profitable and not necessarily more efficient foreign companies. Companies led by deluded businessmen with strong connections to bankers such as Nanjing Auto should be closed down right away.

The solution isn't simple. The car manufacturers cannot be all be closed even if they're not the most efficient. The government should carefully engineer break ups and mergers of the companies. Some may need to be reinvented as transmission and engine specialists and others as full vehicle manufacturers, for example.

After this first stage, the remaining companies should be encourage to team up and develop common platforms (Chassis, engine and transmission) just like Mazda, Ford and Volvo have done for the S40, 3 & Focus or Toyota, Peugeot & Citroen.

SAIC currently have the best technology. It's 2.0L and 2.7L Turbo Diesels designs can be bought from Ssangyong to power medium to large cars. It's 2.5L V6 or 1.8L K-Series from Rover that had many quality issues can be manufactured more strictly and could power sportier and smaller cars. What SAIC needs is a 8-speed double clutch gear box.

These engines can be manufactured at a common powerplant factory co-owned by FAW, Dongfeng, Brilliance and engines sold with a 10% markup mainly to cover admin costs and ensure a small profit.
 

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I'm Chinese (not China born Chinese) and I'm still very skeptical about buying Chinese cars... maybe in 15-20 years, I'll get one for my kids.

Unless the price is right, I just don't see a good reason to buy Chinese cars over Japanese, American, European cars.
 

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Jackk said:
This is so obvious.

Everybody can see that there are too many manufacturers in China.

Too many companies is probably good for the customers in the short term but it'll keep profits and most likely quality low and after all the fighting, the weakened but best of these companies will be taken over by much profitable and not necessarily more efficient foreign companies. Companies led by deluded businessmen with strong connections to bankers such as Nanjing Auto should be closed down right away.
What utter tosh! I live in the west and can tell you that the only Chinese car company I would buy from is the well led Nanjing Auto. It now has access to a world class team of western car designers and engineers (including people from LOTUS and ARUP). It makes proper cars using proper robots from a proper western car company (MG Rover). It has the BEST Chinese owned brands (MG and Austin) which are actually known outside China. And I have some comfort in the fact that their models will pass crash worthyness tests!

As for Roewe (made by SAIC) which even the Chinese don't know how to pronounce then I'll wait and see how their cut and shut version of the Rover 75 does in an NCAP test before I judge it. However I won't buy a Roewe when I can get an MG simply because the MG will be worth something when I trade it in...If you ask me Nanjing may have strong connections with banks but banks invest in things they think will suceed (good thing). Now if only a bank was running SAIC. Perhaps then they would have tried to buy all of MGR when they had the chance...
 

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Jackk said:
Companies led by deluded businessmen with strong connections to bankers such as Nanjing Auto should be closed down right away.
I suspect you know nothing about Nanjing Auto's leader since I wouldn't have called him either "deluded" or, given his background, a "businessman". If you do have good reason for your statement then please explain...

What about some of the others? Please take Great Wall Auto's leader as an example, I'm sure you would put them in the same catagory as NAC...
 

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MG as a brand isn't worth much outside of the UK. The old MGs were not known for their reliability and MG didn't see a profit in the US market. When was the last time MG was distributed in the US? What is left of MG's dealership network? They'll have to rebuilt their network and they'll have to give heavy incentives for people to set up dealerships to sell a car that almost 10 years ago wasn't selling well anyway, were known for their erratic quality and of the 3 people I know, who bought MGs just before they stopped selling them have sold them for a Honda Accord Euro, a Golf GTI and a Lexus IS250 because of mechanical and quality problems.

If you think highly about MG... let me guess, you're into your mid 50s, british, drink tea and play cricket!
 

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So, when were Minis last sold outside of the UK in any great volume (excluding the Japanese/German markets who were still buying as many as the Brits until 2000)?
Has it stopped MINI being a success in Australia, or the US? Last time they saw a Mini in the US was 1972/3 and even then they were just a cute little import. Yeah, sure, it's because BMW own the brand, right!

So, as to MG, yes, I would think that most of the 400k MGBs that found their way to the US in the 60/70s now remain in the hands of devoted enthusiastic Anglophiles in the 50s +. As to their reliability and quality back then, well, from what I recall they were no worse than most others with the exception of the Japanese.

But that said, it would appear that many owners of Japanese sports cars in the US get fed up with being asked if it is an MG they own. Which goes to show that two seater sports cars are aka MGs in the minds of the buying public.

So if MINI can attract the youngsters, then so could MG on a global market.

As to the owners of MGs in this country, being involved with both the MGCC and MGOC (both of whom claim >40k members globally) I know that a lot of teenagers are finding the classic MGs attractive. Cheap to buy, cheap to insure, and easy/cheap to work on. As to the ZR it was the best selling hot-hatch in the UK throughout production, and again very well supported with aftermarket and club level activity. The F/TF also outsold the MX5 in the UK.

Rover got tainted with the old man image, people bought MG in preference. Most new MGs being bought were not by enthusiasts, although many have become such through the numerous clubs and forums that they don't get with the Euro/Jap cars. Most new buyers bought MGs after test driving them according to what I can see from posting on many MG Rover forums over the last 5 yrs. So no, far from the image you claim, the average of the new MG buyer is probably 30, and cricket, what's that? Footie fans more like. As to the typical mid 50s person that thinks highly of MG, a lot of them think the last proper MGs were made when they started fitting wind-up windows to the cars.

I was mid 30s when I bought my new MG (in fact 24 when I bought a Roadster) was brought up in Africa, and don't bother with sport - I think highly of MG (and Rover) because of it's heritage, and the long track record of reliability with over 5 cars over 12 yrs over more than 400k miles. My current ZT has given no problems whasoever apart from a faulty German fuel pump that cost me a roadside tow. Having paid a lot less than a German saloon of comparable performance, the lower residual is of little concern to me as in real terms over 5yrs my actual loss from the purchase price has been substantially less than the German car with higher residuals. As for my numerous business colleagues that own German executive cars, few have good things to say about them, and most have experienced failures and breakdowns.
 

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06STI said:
I'm Chinese (not China born Chinese) and I'm still very skeptical about buying Chinese cars... maybe in 15-20 years, I'll get one for my kids.

Unless the price is right, I just don't see a good reason to buy Chinese cars over Japanese, American, European cars.
Your sentiment is no different from everyone else. One thing you can count on though, the PRICE will be RIGHT.

On the flip side, look at all the stuff in your home, I'll bet half of them are made in China these days. I have no problem with Chinese made stuff. I'm using a Lenovo/IBM laptop and it rocks.
 

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BringIt said:
Your sentiment is no different from everyone else. One thing you can count on though, the PRICE will be RIGHT.

On the flip side, look at all the stuff in your home, I'll bet half of them are made in China these days. I have no problem with Chinese made stuff. I'm using a Lenovo/IBM laptop and it rocks.
I also have bunch of Chinese made stuff at the house and they'll work great to some extend. They're coming up in the world, just need a little more quality control.
 

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Jackk said:
MG as a brand isn't worth much outside of the UK. The old MGs were not known for their reliability and MG didn't see a profit in the US market. When was the last time MG was distributed in the US? What is left of MG's dealership network? They'll have to rebuilt their network and they'll have to give heavy incentives for people to set up dealerships to sell a car that almost 10 years ago wasn't selling well anyway, were known for their erratic quality and of the 3 people I know, who bought MGs just before they stopped selling them have sold them for a Honda Accord Euro, a Golf GTI and a Lexus IS250 because of mechanical and quality problems.

If you think highly about MG... let me guess, you're into your mid 50s, british, drink tea and play cricket!
Actually I'm 29, hate cricket and of mixed race! Frankly I think you are a little ignorant on MG. MG has the worlds largest single fan club! It's well known in the US, so much so that an MGB featured in an episode of Friends. Name one Chinese brand that's better known outside of China than MG? Bet you can't? Nope didn't think so... The original point you made about Nanjing is completley unfounded. Unlike SAIC they have had the brains to spend 50 million pounds on a 4 brands (MG, Austin, Morris and Wolseley), a factory full of robots and they have gained access to the kind of people who once designed Land Rovers. SAIC got some dodgy old blueprints for the same amount. Given this are you sure Nanjing should be closed when clearly SAIC who are supposed to know what they are doing are clearly not competant enough to do deals like this...

As for you arguement about lack of dealers then you will share my delight in knowing that well over 150 former UK dealers have said that they want to start selling new MG's whilst 300 US dealers are already being lined up for US sales! Guess not many dealers in the US think this will work either? By the way how many does Brilliance have in the US? Or Roewe?

As for quality then I'd agree, must do better. But that's not what this arguement was about. It was whether Nanjing should be closed or not. Clearly 450 potential dealers outside China think you are badly wrong! US investors paying Nanjing 2 billion dollars for the right to make some cars in Oklahoma, think you are wrong. Nanjing MG a world class company!
 

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Martin W... I like the points you raised and among all the posts, yours are the most realistic and factual.

Regarding the Mini... the weaknesses were that the original design was unsellable. Actually, the new mini has almost nothing to do with the old one but the strengths were the might and reputation of BMW and that the Mini was a world wide success in its time. It incorporated many technological advances such as traverse mounted engine.

MGs strengths are its small but hardcore followers, its still sexy design, its technically still advanced VVC engine. In their current state, MGs do not need much redesigning but they need to be manufactured to Toyota Japan(Nagoya?) standards (parts purchasing, robots maintenance, quality control etc. etc.), marketed and distributed astutely and that's something SAIC was better placed to do than Nanjing, in my humble opinion.

Anyway... we'll see in a couple of years how this all unfolds.

MGRoverNut... I know. I'm a shit stirrer! Sorry but I can't help it.

I think that Chinese Car companies would have a better chance if they were to concentrate on their domestic markets first. Many European manufs have bled trying to break into the US market e.g. Peugeot, Citroen, Fiat etc. and these were succesful, seasoned car makers. In China, however, Roewe or Rover, Morris Garrage or Modern Gentleman doesn't speak as strongly as design, price, friend recommendations etc.
 
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