Bill Russo to chair Automotive CEO Dialogue at J.P. Morgan Global China Summit

Beijing, China, June 3, 2015

Gao Feng’s Managing Director and Auto Practice leader Bill Russo will chair a panel discussion titled The Next Golden Age of China Auto Industry at 11:15am on Wednesday, June 3.

CEO Dialogue:  The Next Golden Age of China’s Automotive Industry

Hubertus Troska, Member of the Board of Management, Daimler AG; Chairman & CEO, Daimler Greater China
Karsten Engel, President and CEO, BMW Group China
Jochem Heizmann, Member of the Board of Management of Volkswagen AG, President & CEO Volkswagen Group China

Chair: Bill Russo, Managing Director, Gao Feng Advisory

J.P. Morgan Global China Summit 2015 Event Brochure from Gao Feng Advisory Company

Too Many Car Factories in China?

Bloomberg News, February 13, 2015

Automakers have been successful at adding factories. Maybe too successful

When consultant Bill Russo visited Chery Automobile’s headquarters in China’s eastern Anhui province about three years ago, he listened to the company’s plans to expand its factories to make as many as 1 million vehicles a year. But demand didn’t grow as planned. So Chery today has the capacity to make 900,000 vehicles annually—twice the number of cars it sold last year. Sales have slumped by one-third since their peak in 2010.

“Chery is a classic case” of overcapacity, says Russo, a former Chrysler executive who’s now a Shanghai-based managing director at consultant Gao Feng Advisory. “The pressure is that once they receive the permission [from government authorities] to build, they feel like they have to build.” Chery didn’t respond to requests for comment about its sales falling short of planned capacity. 

Domestic and foreign-based carmakers are building more factories in China than anywhere else, a construction binge that risks hurting margins in what remains one of the world’s most profitable vehicle markets. By 2017 there will be 140 car production plants in China, vs. 123 at the end of 2014, estimates JSC Automotive Consulting. 

According to IHS Automotive forecasts, factories across the mainland in 2015 will be able to build 10.8 million more vehicles than will be sold in Greater China. In North America, however, IHS expects plants to churn out about 3.2 million more cars this year than the factories were intended to produce when they were built. 

140Estimated number of auto plants in China by the end of 2017, up from 123 at the end of last year

Overcapacity is only expected to get worse for Chinese carmakers. China will have about 11.4 million vehicles’ worth of idle capacity by 2017, more than double that of European automakers, according to data from JSC and Deloitte Consulting. 

Some carmakers already are regretting plans for Chinese plants that will open in the next few years, says Jochen Siebert, Shanghai-based managing director of JSC, who declines to name the companies. “But that decision has been made,” he says. “It’s done; they cannot backtrack.” 

Plans for most of the factory space built in China in the past few years were put in motion during the global recession, when China proved to be a godsend while General Motors and Chrysler were being bailed out by the U.S. taxpayer and Europe’s auto sales seemed in free fall. The trouble is, too many carmakers sought the same refuge. 

“When you get too many competitors with too much capacity, there’s just not enough growth to sustain everybody,” says Thomas Callarman, Shanghai-based director of the China Europe International Business School’s Centre for Automotive Research. “They’re all smart people, and they look at the right things, but I think they read the tea leaves wrong.” 

For now, the China car market remains profitable. Chinese automakers accounted for 7 of the 10 carmakers with the highest profit margins in the world, with BMW’s Chinese partner, Brilliance China Automotive Holdings, topping the ranks at 8.2 percent in the past year, according to data compiled by Bloomberg Intelligence. Toyota Motor’s margin was 7.6 percent. Hyundai Motor and Volkswagen’s Audi count China as their largest market, with Subaru maker Fuji Heavy Industries standing out as the only car manufacturer among the 10 most profitable that doesn’t have a factory in China. 

 

Foreign carmakers have been among the most enthusiastic factory builders in China, with Hyundai, Renault, and Fiat Chrysler Automobiles’ Jeep among those that have announced plans or are already building in China. 

GM will soon sell Buicks made at a plant that opened last month, with plans to open a Cadillac factory later this year. GM has 22 factories on the mainland. Volkswagen, which is vying with Toyota and GM for the global auto sales crown, has 28 plants in China and will open three more within the next few years. 

Jochem Heizmann, who heads Volkswagen’s China business, told reporters in November that the automaker has decided to expand its China capacity to more than the previously targeted 4 million autos a year by 2018 because it couldn’t build enough to keep up with demand. 

In the next few years, however, increased competition amid slowing growth in car sales will result in lower prices, says Yang Yipeng, a Beijing-based analyst at Goldman Sachs’s Chinese affiliate. As the world’s second-largest economy cools, vehicle sales are forecast to expand this year at just half of 2013’s 8 percent growth, to 21.3 million passenger vehicles. General Motors President Dan Ammann said in January that he expects China’s sales expansion to slow over the next few years after being the main engine for the global industry’s growth for 15 years. Volkswagen in November also said the pace of expansion is becoming “more normal” in China. 

The spare capacity may force carmakers to increase sales incentives, hurting profit margins, Barclays says. “This is a heavy asset industry,” says Song Yang, an analyst at Barclays. “When utilization trends down, margins will trend down.” Already, car dealerships in China are asking for financial support and lower sales targets from carmakers after a combination of rapid expansion of sales networks and increased restrictions on vehicle ownership by city governments hurt their profits. BMW agreed last month to pay 5.1 billion yuan ($815 million) to its dealers. Toyota will give $200 million to the dealers of one of its joint-venture partners, FAW Group, while Renault, which is building a plant that opens in China next year, said it will give its distributors more rebates. 

The bottom line: By 2017, plants in China will be able to produce 11.4 million more cars than will be sold there, JSC Automotive forecasts.

Global Automotive Forum 2013: China and the world in focus

Autocar Professional, November 15, 2013

The fourth annual Global Automotive Forum (GAF) held from October 18-19 was special for multiple reasons. While 2013 marks the 60th anniversary for China’s automotive industry (when its first automaker, First Automotive Works was founded), the year also sees the 30th anniversary of first saloon assembled in China by Shanghai Automobile Industry Corporation (SAIC) and the construction of the first expressway in the country.

Furthermore, the China Council for the Promotion of International Trade (CCPIT) had chosen Wuhan for this year’s GAF – a Tier 2 city as per Chinese city standards but massive enough to raise solid doubts about our own definition of a Tier 1 city in India. 

While the globally not-so-popular Wuhan is not only an upcoming economic powerhouse, it is also an important location to what Chinese government officials call as the ‘rise of central China strategy.’ Considered as the largest logistics and distribution centre in the inland China, thanks to its connectivity with high-speed rail network, largest inland port besides the expressways, Wuhan is also known to be home to a cluster of automobile and auto ancillary makers with the most prominent name being the Dongfeng-Citroën Automobile Company. 

With the theme being future development of the auto industry – target, strategy and implementation, the two-day conference saw participation from over 700 automotive industry officials from around the world including government representatives. Interestingly, the conference seemed to depict China’s all-new and rather liberal approach towards laying down the future growth roadmap for its automobile industry. For the first time, officials from the government and local companies recognised both the shortcomings and challenges which are deterring the growth of the Chinese auto companies and industry as a whole. 

Guess that’s what it takes especially when you are the largest automobile market in the world but without even a single home-grown brand that is as prominently known as the many European brands which sell in big numbers in China. 

The global interest in China is not without reason – the seven percent GDP growth and an estimated total sales of 20 million units by 2020, and double that to 40 million units by 2030. 

Collaboration is key

The star attraction of GAF 2013 was the hi-profile and power-packed session with participation from Alan Mulally, president & CEO, Ford Motor Company, USA; Li Shufu, chairman, Volvo Car Corporation and Geely Holding Group, China and Dr. Jochem Heizmann, president & CEO, Volkswagen Group, China. The session raised a question on the need to establish greater cooperation and collaboration for ensuring sustainable development of the auto industry and Mulally began with enthusiastic words – “Our answer at Ford is absolutely yes.” Explaining his outlook, he said that “we are touching sales of nearly 80 million units, 40 percent of that would come from Asia-Pacific led by China while 30 percent would come from European countries, USA and Africa. While we continue to cut down the carbon emissions, improve the internal combustion engines (ICEs), composite materials, make our cars lighter, work on alternate fuels including the use of hydrogen, design electric cars and raise the apt infrastructure, we do have to join hands to establish a cleaner world. At Ford, we have always believed in opening the highways to all mankind, we must ensure that we all collaborate and provide the best technology to our consumers.”

VW's balancing act

Agreeing to collaborate, VW AG's Dr. Heizmann said “We need to find the right balance between individual mobility and environmental requirements. The most important need of the hour is cooperation. The auto industry has to reduce its dependence on water and energy resources and at VW, we have reduced the consumption of water by upto 90 percent in our advanced paint shops. Since 2005, we have reduced fuel consumption in our China fleet by five percent. Our fuel efficient TSI engines are equipped with start-stop, brake recuperation technologies and are built on lightweight platforms, which are our initiatives for better fuel economy. The new Golf model saves around 100kg as against its older model. With the Porsche Panamera plug-in hybrid, we are offering a better car in China. Our priority will be to focus on plug-in hybrid cars in the foreseeable future while pure electric cars will happen later. While we know that battery technology needs a lot of advancement, we all are working towards the same.” 

He also appreciated the policies laid down by the Chinese government to promote the e-mobility and the infrastructure and added that “VW will do its best to support these policies.” 

Meanwhile, Li Shufu announced the beginning of Volvo Cars' nationalisation project in China. While Geely Automobile Holdings had bought Volvo Cars in 2010 from Ford (the biggest Chinese auto investment overseas), it was not getting due approvals from the Chinese government to set up plants to roll out Volvo cars in China. However, with approvals in place now, Shufu said that “the approval of Volvo’s production project marks the beginning of Volvo’s great future in China. Our immediate priorities are to improve Volvo’s brand recognition in China along with its aftersales service network while we continue to invest and learn from our R&D initiatives. Geely will remain a brand for the masses while Volvo cars will be positioned as luxury products, as both brands would continue to have their own product lines. These synergies will help us lower the development costs eventually.” 

Industry experts believe the Geely-Volvo combo will push the acceptance of this made-in-China brand, translating into increased exports. While China’s annual production and car sales stand around 19.3 million units, the world's largest car market exports only five percent of that.

Vision 2030 GAF 2013 was bent on seeing tomorrow today. According to Frank O’Brien, executive VP (Asia), Magna International Inc, Canada, cars by 2030 would have more functional exteriors, multipurpose interiors and many other futuristic applications. However, he added that “legislations play the most important role in introducing new technologies. The speed of legislations is substantially holding back a lot of new technologies.” California-based Pinnacle Engines made its presence felt at GAF 2013. “While everyone is talking about electrification of vehicles, we don’t exactly know by when the technology would be ready. At Pinnacle, we have mastered post-piston technology, which is a completely different engine design as compared to conventional engines and delivers a guaranteed improvement in fuel economy by upto 50 percent. Our first project will see commercialisation in India as early as 2015 in a two-wheeler application,” said Ronald Hoge, chairman and CEO, Pinnacle Engines.  Tapping opportunities outside China Discussing the challenges faced by Chinese automakers in tapping foreign markets, Bill Russo, president, Synergistics Ltd and senior advisor to Booz & Co, USA and a Chrysler veteran who has spent over 9 years in China, said: "While we all understand that it is essential for any growth-oriented global car company to do business in China today, the Chinese brands might take another 5-10 years to find substantial recognition among car buyers in mature western markets because they are not first-time car buyers. Most Chinese automakers have grown inorganically (through acquisitions such as SAIC-GM, Geely-Volvo, Dongfeng-PSA) which means they have limited indigenous capabilities. One which is most developed in this regard is the Great Wall Motors which has grown organically.”  According to him, around 74 percent of all passenger vehicles sold in China in 2012 were either foreign brands or models made under JVs. “Hence the fragmented auto companies in China need to first establish a successful consumer base in their own domestic market and rework their image of building ‘cheap cars’ to ‘affordable cars’ globally. They should overcome main failures by first setting up a stable domestic structure to compete globally, make global HR talent pool, setup quality conscious suppliers globally and also the financial and after-market services to win opportunities in other markets,” concluded Russo.

全球汽车论坛举行 中国因素关乎世界汽车业发展

China News, October 25, 2013

　　这是中国汽车业界高水平的论坛，政府、行业、企业代表层次颇高，热点话题层出不穷。政府部门的相关人士在论坛上表示：“随着越来越多国内企业走出国门，合资公司股比放开的问题也会提上议事日程”。在中国整车制造生产领域，外资持股比例不得超过50%，一直是政策的“红线”。虽然争议不断，但在近年来却持续升温。此次论坛，这个话题再一次成为了焦点之一，而且响应者有所增加。——编者

　　10月17日至18日，第四届全球汽车论坛在武汉成功举行。与会嘉宾紧紧围绕“汽车未来发展之路——目标·策略·模式”的主题展开精彩对话和研讨。

　　今年，中国汽车产销有望突破2000万辆大关，继续领跑全球汽车市场。但是，全球汽车产业共同面临诸多挑战，包括环境、油耗、能源、安全与交通管理等等问题，能否提出可行的、创新性的解决方案，已成为关乎汽车产业发展及汽车企业生存的关键因素。因此，政策制定者、重要的行业机构、汽车制造商、供应商、销售商和所有相关方之间的协同合作也正在变得更为重要。

　　全球汽车论坛组委会执行主席、中国国际贸易促进委员会汽车行业委员会会长王侠在开幕式致辞中说：“作为全球人口最多、新车需求量最大、汽车产业发展增长最快的国家，中国汽车产业在成为全球汽车产业发展引擎的时候，所面临的巨大挑战和深层次问题也应该引起全球的关注，因为这些问题的解决不仅关乎中国汽车产业的发展，也关乎世界汽车产业的发展。”

　　本田技研工业株式会社会长池史彦对于中国汽车工业的发展寄予厚望。他认为，面对来自于能源、环境的挑战，重要的是中国应该引领全球汽车行业的方向。而这样一个正确的方向和节奏，可以更好地为世界带来利益，而且重要的并不仅仅是提高销量，而是质量、安全以及环保，这样才能够更好地实现全球竞争，支持全球的市场更好地接受中国制造的汽车。

　　但事实上，中国要引领全球汽车的方向，要解决的问题还有很多。中国机械工业联合会会长王瑞祥指出，和世界发达国家相比，中国在自主创新、核心零部件和品牌打造等方面还存在着较大的差距。“要真正建设汽车工业强国，我们还有很长的路要走。”王瑞祥说。

　　美国博斯公司（Booz&Company）高级专家，Synergistics有限公司创始人、总裁BillRusso也指出，现在中国汽车市场仍然非常分散，自主品牌竞争非常激烈。所以，中国的汽车格局还是分而治之，没有凝聚力，而且本土的内部市场就是竞争非常的激烈。这个竞争层次还需要提升。

　　作为全球第一大汽车市场和生产国，未来中国能否引领全球汽车行业的方向？东风汽车公司总经理朱福寿提出：面对战略机遇期，中国汽车产业如何实现持续、健康发展，必须解决三个矛盾点：合资品牌与自主品牌在中国市场同台竞争、长期对峙的矛盾；中国企业走进国际市场的坚定决心与国际贸易壁垒的矛盾；汽车刚性需求与能源、交通、环境保护的矛盾。

　　广汽集团总经理曾庆洪的建议是：第一，加快自主创新能力的提升，特别是关键零部件与关键核心技术的突破；第二，加快整合重组；第三，加快经济结构调整，特别是产业布局调整。而四个跨越包括：从制造到创造的转型升级、生产基地向产业基地的跨越、从资产经营向资本经营的跨越、从经营产品到经营品牌的跨越。

　　江铃集团董事长王锡高则认为，为提高我国自主品牌汽车企业的自主研发能力，在引进国外先进生产技术时通过吸收、模仿、改进，逐步实现技术科研开发的成熟化，最终达到能够自主创新的目的。在这个环节中，改进是关键，不能一味地模仿外国的技术，而应该在学习的同时找出一条适合中国市场和国际市场实际需要的道路。

　　观致汽车董事长兼首席执行官郭谦表示，中国汽车发展经历了几个阶段，首先是能够掌握一些关键技术，或者是一个车身，一个变速器；其次，能掌握车的整合；第三，产品的平台化、模块化；第四构建品牌特征。在这方面，观致汽车已经打造了一个高起点的汽车，成为一种观致新模式。

　　福特汽车公司总裁兼首席执行官AlanMulally则给出了一个可持续的技术路线图：柴油以及汽油在内的传统内燃机及材料的改善，空气动力学以及电子设备等等的改善和系统的整合以及技术的连接性，汽车未来会变成一个可移动的设备，让人们可以连接到互联网，混合动力到纯电动车的发展。“在整个过程当中，需要协同合作，让全球各地的政府和企业一起来建设基础设施，这样才能够把这些成熟的技术带给消费者”，AlanMulally说。

　　大众汽车集团（中国）总裁兼首席执行官Prof·Dr·JochemHeizmann博士认为，汽车行业未来发展靠的是三个支柱：节约资源的生产、高效的移动性和智能的系统。他坚信，要实现这样一些目标，中国的汽车行业需要广泛的合作，包括和供应商进行合作，一个清晰稳定的法律框架和环境，并且能广泛和核心的参与者和合作伙伴建立关系，同时员工要建立紧密的团队合作精神。

　　就中国车企的国际化合作来讲，通过收购沃尔沃和其他一些国际公司，吉利汽车已走到了前列。沃尔沃汽车公司董事长、吉利控股集团创始人兼董事长李书福表示，今年8月，吉利沃尔沃在成都的国产化项目已经获批，这也是中国汽车工业进行中具有非常深远意义的一件事。目前，吉利已立志将中国打造成沃尔沃的第二本土市场，推动沃尔沃汽车在全球范围内的复兴进程。

　　第四届全球汽车论坛共安排16场公开环节，分别就战略机遇、跨国发展、未来汽车、后市场、金融创新、新能源战略、汽车消费、国际化人才等等一系列议题展开了精彩的讨论。论坛组委会执行主席王侠说，中国的汽车梦是世界汽车梦的重要组成部分，全球所有汽车人的共同梦想就是：汽车让社会更美好。这次融合了全球智慧为汽车工业发展建言献策的论坛，正用大家的创造性、建设性、前瞻性的思想，去引领汽车产业的新一轮发展。

　　本届论坛由中国国际贸易促进委员会汽车行业委员会和武汉市人民政府主办，吸引了来自世界20个国家和地区的900多名专业人士参与，其中200多人为外宾或来自境外，使“全球”论坛的性质进一步得到强化。(张宇星)

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