China’s antitrust fines for foreign car companies fail to stall growth

The Financial Times, November 3, 2014

Trading up: premium vehicles cost almost twice as much as in the US

For multinational car companies operating in China, the euphoria from the biggest ever automotive boom in industrial history is finally being tempered by some unexpected risks, most notably a controversial investigation by the National Development and Reform Commission (NDRC) into allegedly anti-competitive behaviour by Audi, Mercedes-Benz and other brands.The investigations have so far resulted in fines that are peanuts in comparison to the vast profits that foreign automakers have enjoyed over recent years – and continue to enjoy.

In July, a joint venture between Volkswagen unit Audi and state-owned First Auto Works was ordered to pay $41m for alleged violations of China’s 2008 Anti-Monopoly Law. This compares with reported operating profits of $12.2bn for VW’s joint ventures in China (its other is with SAIC Motor) last year.

Fiat unit Chrysler was also hit with a small fine this summer, while Daimler’s joint venture with BAIC Motor, which makes Mercedes-Benz saloons, is still awaiting the outcome of an NDRC investigation after one of its Shanghai sales offices was raided in July.

These fines are the byproduct of a wide-ranging investigation that appears to have a much larger aim – forcing car companies, regardless of whether they are in fact guilty of anti-competitive practices, to lower the prices of their vehicles, spare parts and services.

According to one industry executive, the head of a multinational company’s China operations has told visiting board members that, in view of the NDRC’s offensive, his biggest fear is of a sudden shift in government policy. “It’s bad for business,” the executive says of the investigation. “It has made the investment environment very uncertain.

“If people can afford the cars, they can afford the spare parts and after-sales service,” he adds. “It’s not like the NDRC is lowering the price of medical care or making food cheaper.”

Foreign automobile executives argue that the relatively high prices asked for cars – especially premium vehicles that can be almost twice as expensive in China as they are in the US – is a function of unprecedented demand, even for overseas models subject to expensive import taxes.

China’s car craze began in earnest in 2008-09, during the depths of the global financial crisis, when it overtook the US as the world’s largest car market. 

Demand from entire generations of first-time drivers soared in the world’s second-largest economy, just as purchasing power collapsed in the US and Europe – a nadir symbolically marked by Washington’s bailout of General Motors in December 2008. 

Over the ensuing half decade, foreign carmakers in China, especially long established ones such as Volkswagen and GM, had a license to print money. 

Even last year, when double-digit annual growth was finally expected to taper, annual sales grew by about 15 per cent to 18m passenger cars – 10 times as many as were sold in India.

This year began in similar fashion, especially for foreign brands and their Chinese joint venture companies. Sales of Chinese brands, however, began to fall sharply and their share of the passenger car market tumbled from 27 per cent to 23 per cent.

The precipitous fall-off in sales of local brands and slower economic growth has forced the China Association of Automobile Manufacturers to lower its projection of an 8.3 per cent increase in year-on-year sales this year to 4.6 per cent – two-thirds down on last year.

In the first quarter, Geely, the private sector carmaker most famous for its purchase of Volvo Cars from Ford, saw sales of its own-brand vehicles fall by as much as 40 per cent over the same period a year earlier. 

This was despite a gradual improvement in the quality of local-brand cars in China, according to Geoff Broderick at JD Power, which publishes an annual customer survey of 212 models across 62 brands. “The domestic brands are doing exactly what they should be doing – focusing on quality,” Mr Broderick says. “But as we see the quality gap closing, we’re not seeing a pick-up in [local brands’] market share.”

Investigations have so far resulted in fines that are peanuts in comparison to the vast profits that foreign automakers continue to enjoy

One reason for the fall has been a counterintuitive NDRC requirement that foreign-invested joint ventures develop a local brand for the China market, such as the Baojun saloon manufactured by GM, SAIC and Wuling. Many of these new entrants are priced to compete against domestic rivals, especially in smaller cities where car ownership rates are relatively low.

“I don’t understand what the Chinese government’s objective was in encouraging foreign companies to create local brands,” says Bill Russo, a Shanghai-based industry consultant. 

“It only cannibalises already distressed sales of local brands. I think the intent was for more technology to be shared by the foreign companies. But the unintended consequence is to take volume from local carmakers producing similar products,” he adds.

At the other end of the spectrum, foreign carmakers continue to thrive in saturated markets such as Beijing and Shanghai, where premium brands such as Audi, BMW and Mercedes-Benz account for a quarter of the market. 

Even now, limits on expensive new licence plates to combat congestion and pollution are spurring their sales, as existing plate holders trade up.

“As cities implement plate restrictions, people gravitate towards premium foreign brands,” says Mr Russo. “They want to put their expensive plates on the best piece of automotive technology that they can.” 

Click here to read the article at FT.com


Jaguar Land Rover’s first China factory caps carmaker’s resurgence

The Financial Times, October 21, 2014

The opening of Jaguar Land Rover’s first China factory caps a five-year resurgence under Indian ownership that has made the Coventry-based company a byword for British manufacturing excellence and export prowess.

The new plant in Changshu, about a two-hour drive from Shanghai, marks a pivotal moment for JLR. The Tata Motors unit needs a manufacturing presence in China to consolidate its position in the world’s largest car market – but also wants to assure its British workforce and the UK government that international expansion will not jeopardise jobs at home.

As part of that effort, JLR is boosting investment at its factories in Liverpool and the West Midlands and this month opens a new £500m engine plant in Wolverhampton – even as it plans to open another manufacturing facility in Brazil. Last week, JLR’s factory in Halewood, Merseyside began producing the new Land Rover Discovery Sport after a £200m investment that created 250 new manufacturing jobs and £3.5bn in supplier contracts.

The Changshu factory, a Rmb10.8bn ($1.8bn) joint venture with state-owned Chery Automobile that opened on Tuesday, will produce JLR’s less expensive Range Rover Evoque for the China market, where the company sells almost five SUVs for every one Jaguar saloon. On Tuesday, JLR said that it also intended to produce a Jaguar saloon model at the factory by 2016.

“The demand that’s here in China will far outstrip [Changshu’s] capacity so we have absolutely zero plans to export any cars whatsoever,” Bob Grace, JLR’s China head, said at this year’s Beijing Auto Show.

Mr Grace hosted UK trade unionists in China at the outset of JLR’s investment programme in an effort to allay their fears. “You can imagine the thoughts that go through their mind when you open a factory in China,” he said.

“When you look at the competitive situation it doesn’t take long to realise that you have to build the cars in China as part of our global aspirations to be a fairly significant player.”
Roger Maddison, at UK union Unite, was one of JLR’s guests and says the union accepts the logic of the Changshu investment but has concerns about the longer-term trend it signals.

“Tata knows what differentiates JLR from other carmakers – it’s British,” says Pierluigi Bellini, analyst at IHS Automotive. “If they start developing cars in, say, India, it’s going to be a different brand image . . . Developing it from scratch – blank white paper to the final design – it’s important to keep that in the home market.”

Tata bought JLR from Ford in March 2008, a week after JPMorgan bought Bear Stearns. When Lehman Brothers went bankrupt six months later, the global financial crisis began in earnest and Ratan Tata, then chairman of the Indian group, had plenty of reasons to regret his purchase.

But the Indian provenance of JLR’s new owner hinted at the multinational nature of its future transformation, which would be built on surging demand in developing economies. The most important of these was China, whose emergence as the world’s largest car market coincided with the US government’s December 2008 bailout of General Motors.

“During the early part of 2009 we were pretty close to the wire as a business,” said Mr Grace. “But I used to come to China once a quarter and got a sense that something different was happening in this place . . . It’s almost a miracle that the [China] factory has come out of the ground in such a short period of time.” JLR’s joint venture with Chery was announced less than two years ago.

Bernstein Research predicts JLR will sell 130,000 vehicles in China this year, compared with 54,000 total units in 2009-2011. The Changshu factory’s initial annual production capacity is 130,000 vehicles but output is expected to ramp up gradually over the next few years.

“No other [carmaker] has benefited as much from China,” Max Warburton, senior analyst at Bernstein Research, wrote in a recent report. The country now accounts for a third of JLR’s total sales and, Mr Warburton estimates, more than half of its earnings before interest, tax and depreciation. In its latest quarter JLR posted pre-tax profit of £924m, on revenues of £5.35bn.

But the success has been driven by the Land Rover side of the company – in particular the Range Rover Evoque, a sporty 4x4. JLR sold more than 90,000 cars in China last year, but only 16,000 of these were Jaguars. The big three German brands – AudiBMW and Mercedes-Benz – sold more than 1m. 

JLR joins the “big three” Germans as the fourth big premium carmaker to begin manufacturing operations in the world’s largest car market. Annual sales of premium vehicles, currently about 1.3m, are expected to reach 2.5m-3m units by 2020. But the Germans dominate the sector, with a combined market share of about 80 per cent. 

“There’s lots of opportunity for new premium entrants,” says Bill Russo, a Shanghai-based industry consultant. “The market is underserved. The German three alone can’t continue to maintain that kind of dominant market share. They can’t keep up with demand.”

JLR estimates that local manufacturing has allowed its German rivals to reduce prices by about 15 per cent on average, thanks to savings on import tariffs and other costs. The UK company, by contrast, has what Mr Warburton calls “the most egregious pricing in China”.

In response, Mr Grace says JLR has “worked quite closely with [Chinese regulators] in terms of reacting to the challenges they gave us [on pricing]. We more than met their requirements”. He adds: “We’re not setting the market price – we’re following the market price.”

JLR reduced prices on some Range Rover and Range Rover Sport models earlier this year in China, in response to a concerted campaign by the National Development and Reform Commission to drive down the pricing of vehicles and spare parts.

But the price differential between the same Land Rover models sold in China and other markets remains wide, with a top-end Range Rover selling for the equivalent of £85,400 in China and £44,000 in the US.

Click here to read the original article at FT.com 


How Connected Mobility Technology Is Driving The Future Of The Automotive Industry


Click here to view the seminar given by Bill Russo

We are pleased to share with you a seminar on the topic Reinventing Mobility in the China Context: Building the Internet of Mobility & Related Smart Car Technologies. With the auto industry developments and the increasingly prevalence of the wireless internet and mobile devices, we expect that the Internet of Vehicles will create discontinuous opportunities for product and business model innovation.

We believe the conditions in China – the world's largest auto market and the market with the largest number of both internet and "smart phone" users – will likely make it the incubator for rapid commercialization of such innovations. China's urban transportation challenge, the high rate of adoption of connected mobile devices, combined with the rapid and aggressive introduction of alternative mobility and vehicle ownership concepts from new entrants, will ultimately compress the time needed to commercialize smart, connected car technologies and related services. Such developments will dramatically alter not just the feature content of vehicles, but may also usher in a revolution to the business model of the automotive industry – where a model focused on "users of mobility services" could emerge as a real alternative to the traditional model of "car ownership".

Click here to view the presentation slides

Click here to read the associated paper

为何戴姆勒搞不定克莱斯勒 菲亚特却能带着它上市 (Why the Chrysler Fiat Listing is Able to Work)

Jiemian.com, October 12, 2014

菲亚特与其美国公司克莱斯勒合并的决议将生效。而10月13日全新的菲亚特克莱斯勒汽车公司FCA(Fiat Chrysler Automobiles)的股票将正式以FCA为代码在纽约证券交易所上市交易。




重组专家企业阿历克斯合伙公司的欧洲主管斯泰法诺·阿维萨(Stefano Aversa)说,菲亚特和克莱斯勒的合并以及新公司在美国的上市让62岁的马尔乔内有更多筹码来出售非核心业务,或者是达成更多联盟。他表示,“我不认为马尔乔内制定的是一个单一策略,应该是根据市场状况以及企业表现来执行的多重战略。公司在美国的上市给了他很多选择,这本身就是极有价值的。”

现年38岁的菲亚特集团主席约翰·艾尔坎(John Elkann)支持马尔乔内的决定。他表示:“我并不打算出售菲亚特的股权,尽管菲亚特与其它企业的合并将会导致阿涅利家族所持有的集团股份遭到稀释,但这会使菲亚特变得更加强大。”Exor SpA持有菲亚特集团30%股权,是意大利知名的阿涅利家族(Agnelli)资产。该集团目前正由艾尔坎执掌。


评级机构标准普尔在伦敦的企业信用评级董事阿莱克斯·赫伯特(Alex Herbert)说,纽约上市本身不会改变菲亚特的信用评价,更重要的问题是:菲亚特什么时候能够拿到克莱斯勒集团的现金。菲亚特克莱斯勒目前计划在2016年对克莱斯勒的债券进行再融资,有望通过这一操作完全掌控克莱斯勒的现金储备。这笔现金在6月底的时候已经达到133亿美元。


2007年戴姆勒克莱斯勒公司宣称因止不住长期亏损将子公司克莱斯勒集团80.1%的股权出售给私人资本运营商Cerberus Capital Management L.P.。曾轰动一时的跨文化合并就此走到了尽头。2009年,克莱斯勒宣布破产,由美国政府和菲亚特共同接手。直至今年年初,菲亚特正式完成对克莱斯勒的并购,两家公司合并。


前克莱斯勒东北亚负责人、高风咨询公司董事总经理Bill Russo对界面记者表示:“文化差异并不是戴姆勒克莱斯勒分家的关键原因。一家豪华汽车企业(戴姆勒奔驰)与一个大众品牌(克莱斯勒)合并在一起本身就阻碍了合并后协作效应产生作用。”

Bill Russo说:“戴姆勒克莱斯勒遇到的问题将不会在菲亚特克莱斯勒身上重演,两家公司都是大众品牌汽车公司,合并后将共享技术和生产平台从而增加产品的范围。管理层也更加具有对并购公司的管理经验。克莱斯勒将获得小型轿车的生产平台和零部件技术,特别是动力系统。而菲亚特也可以借此打入北美市场。”





Bill Russo to Join Panel Discussion at Global Automotive Forum

Wuhan, China, October 16, 2014

The Transformation of China’s Auto Dealers
Auto dealers in China thrive on new car sales and highly profitable repair services. What opportunities and challenges do dealers face with the growing number of vehicles on the road, increased competition, the internet, and the establishment of more independent repair shop chains?
  • Relationship between e-commerce through the internet and the current sales channels.
  • Transformation from a “commodity economy” to a “customer economy” by applying big data technology.
  • Standardization of the used car market.
Hu Bo, Chief Marketing Officer, Greater China and the ASEAN regional, Volkswagen
Liu Zhifeng, Executive Deputy General Manager of Beijing Hyundai, China Group ChinaChina
Pang Qinghua, Chairman of Pangda Group, China
Bill Russo, Managing Director with Gao Feng Advisory Company, China

Moderated by,
Ma Xiaowei, President of Iautos.cn, China


奔驰和比亚迪用四年造了款车 你会买吗?(Mercedes-Benz and BYD Took 4 Years to Create the Denza EV: Would You Buy It?)

Jiemian.com, September 26, 2014


9月26日,腾势首款纯电动汽车率先在上海上市。这距离比亚迪和戴姆勒成立合资公司已经过去了四年。用四年时间来研发生产一款车在中国人眼里看来似乎太长。深圳比亚迪戴姆勒新技术有限公司COO罗格林(Arno Roehringer)告诉界面记者,如果时间允许,他希望用更长的时间来完成这个项目,因为这是一个全新的项目。


前克莱斯勒东北亚负责人、高风咨询公司董事总经理Bill Russo称,这款车更容易被一些“早期先驱者”购买。







Bill Russo认为,中国的电动车市场目前主要受补贴驱动。大规模的营销活动在初期并不是必须的,更重要的是让消费者接受产品本身,让政策制定者通过税收和补贴政策吸引消费者。



“发展新能源汽车需要时间,需要建立政府部门、汽车公司和基础设施提供者合作的良性生态圈才能让消费者接受。”Bill Russo告诉界面记者,只有消费者认可了,看到这些利益机会时,汽车制造商才更有信心。

林肯重返中国步伐缓慢 公布两款车预售价 (Lincoln Comes to China with Two Models)

Jiemian.com, September 25, 2014




















前福特CEO艾伦·穆拉利(Alan Mulally)曾告诉媒体,林肯品牌发展重点锁定中、美两国,暂不考虑欧洲。林肯也已经将国产设为长期目标,但需要先以进口方式达到一定销量,较为激进的做法是达到3万辆便开始筹备国产事宜。


林肯计划到2016年向中国市场投放5款车型。在MKZ和MKC之后,将继续推出一款中大型SUV、一款全尺寸四门轿车和一款大型SUV——林肯领航员。目前在中国市场上销售的豪华车型已超过 120款,主流豪华车品牌都在扩大产品种类和争夺市场份额。

前克莱斯勒东北亚负责人、高风咨询公司董事总经理Bill Russo称,中国豪华车市场的服务不够好,未来5年销量将会翻倍,这意味像林肯这样的豪华品牌仍有进入的机会,充分借助福特的技术和本土化经验,避免设计张扬能够提高成功的几率,但最终成功与否依赖于林肯如何讲述自己的品牌故事。