It is interesting to note how the financial crisis – while impacting the entire global economy – has been felt to varying degrees in different markets. While negative GDP growth is anticipated for 2009 in the Euro Zone, the US, and Japan, stimulus measures taken in China have yielded remarkable growth in many sectors of its economy. China's stimulus plan provided UD $588 Bn of investment, of which 45% was targeted at infrastructure development. The Auto Industry Revitalization Plan implemented in March 2009 included specific measures to spark consumer demand for automobiles, including:
- Establishment of eight development goals for the industry from 2009 to 2011 to ensure domestic growth of automobile production and sales
- Reduction of half of sales tax for 1.6 liter or smaller cars
- Implementation of policies to boost auto sales in the countryside including subsidy for new minibus or light truck sales for rural residents
Looking forward, Global Insight has forecasted that the Asian markets represent the largest growth potential in the global auto industry…with a combined 4.7% compound annual growth rate over the next 10 years (compared with 2.9% in NAFTA). Within Asia, 54% of that growth is expected to come from China. As a result of these developments, the global automotive industry must fundamentally rethink its structure in terms of regional allocation of capital investment and capacity.
Global automotive companies have been forced to radically and often involuntarily rethink their global footprint. For example, General Motors is in the process of completely unwinding its European operations with the sale of its Opel, Vauxhall and Saab brands. In their North American operations, GM is in the process of selling its Hummer and Saturn brands, and terminating the Oldsmobile and Pontiac brand. At the same time, GM has continued to invest in expanding its capacity in the rapidly growing China market. Similarly, Ford has sold its Land Rover and Jaguar brands to Tata Automotive, and is in the process of selling the Volvo brand while simultaneously expanding their China product portfolio.
Perhaps the most impressive example of this trend is seen with Volkswagen AG. Historically the market share leader in China, the world's third largest automaker recently announced that it sold a record 652,222 vehicles in China and Hong Kong in the first half of 2009, up 22.7% year on year. For Volkswagen, this makes China its biggest auto market worldwide for the first time. VW has achieved these results by bringing their most advanced vehicle and powertrain technology to the China mark, having recently launched their 1.4 - 2.0L TSI engine family. With additional plans to introduce their DSG gearbox, VW is poised to take full advantage of the growth in sales of compact cars. VW will continue to bolster their strength in the market this year, with plans to introduce the all-new Volkswagen Golf, along with plans to start manufacturing two new SUV models in its plants in eastern Nanjing and western Chengdu. In May, Volkswagen formed a partnership with China's BYD Co. to jointly develop hybrid and electric vehicles powered by lithium-ion batteries, becoming BYD's first industrial partner.
Clearly, the global center of gravity of automotive strength has shifted east. Those manufacturers who have anticipated this trend and are providing market-relevant products will continue to reap the benefits as the China market continues its inexorable expansion.
In the next posting in this series, I will describe the trend towards "Acquisition of Foreign Assets and Key Development Competencies by Chinese Companies".