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September 30, 2009
by Bill Russo
The sixth of the Eight Overarching China Automotive Trends That Are Revolutionizing the Auto Industry concerns the rapidly changing structure of the China automotive market and its impact on the competitive landscape. While many Vehicle Manufacturers have reported robust sales in 2009, what may not be understood or appreciated among those who are observing the growth in sales is that this is a market where quantity of sales should not be confused with quality of sales. The China market is now experiencing what many companies doing business in the United States have come to understand for many years: hyper-competition.
With Tremendous Growth Comes Hyper-Competition
As described in detail in Trend #2: Global Redistribution of Assets by Non-Chinese Companies to Capture China Market Growth, China’s vehicle market has more than doubled in size from 4.56 million units (in 2003) to 9.67 million units (in 2008). 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. With the promise of tremendous growth, many international firms as well as Chinese firms are encouraged to allocate resources to seize the opportunities presented by the Chinese market.
The high popularity of the April 2009 Shanghai Motor Show further illustrated the attraction of the Chinese market. The show stand covering 170,000 meters attracted over 660,000 visitors with over 900 models on display, over 300 of which were imports. Over 1500 exhibitors were present at this year’s show.
Early-movers in the China market such as Volkswagen and General Motors have enjoyed significant profit margins by occupying mid-size, full-size and MPV segments without a great deal of competition. In such a market environment, profits could be made on products such as the VW Santana and the Buick GL8 minivan – older technologies that dominated their segments with good margins. However, today’s China market no longer offers such an easy road to profitability. Virtually every major vehicle manufacturer is now present in the China market. A recent J.D. Power & Associates study has reported that many of the cars sold in 2009 were in low-end segments that are eligible for tax incentives and that many of these cars earn the manufacturers as little as $100 each.
However, hyper-competition actually began several years ago, with the onset of a phenomenon called “net negative pricing”. In fact, Global Insight reported the following net segment price declines over a four-year period (starting 2004):
The future outlook is that local brands and international brands will install more capacity in China, placing even more pressure on pricing in order to increase capacity utilization. Weak brands and older models will become the first casualties as market and competitive forces squeeze them out. The competitive battle can only be won with strong brands and contemporary models that can be delivered profitably to savvy Chinese consumers with choices that demand a competitive price.
The Problem of Overcapacity
刘丁 北京
针对最近频发的召回事件，本报专访Synergistics Limited公司的创始人及总裁，前克莱斯勒亚洲区总裁罗威（Bill Russo）先生。
《南方周末》：您如何理解最近中国市场上的大规模频繁召回事件？
罗威：当汽车企业开始追求市场份额时，很多坏的事情就发生了，他们开始追求投资、追求时间表。
丰田过去历史上一直是关注质量，丰田的产品曾经是高质量、高价值的品牌，但最近，5-10年之间，他们变得更贪婪，他们提出的目标是到2010年达到50%的国际市场份额，他们开始追求利润、财务表现和规模，而不是像原来一样追求质量，他们成长的太快了，所以发生了大量召回的事情。丰田的问题，就是他们离开了他们的核心原则。
而目前，所有在中国的汽车公司都在追求市场份额，这就是问题所在，中国的市场竞争将越来越激烈，而汽车公司在竞争下的则变得贪婪和短视，虽然谁都不想自己的产品有问题，但如果你盯住的战略是高增长，市场份额和利润，那么小心了，你将很容易偏离你原来的高质量原则。
况且，中国的游戏规则也不同，你必须与本土企业合资，所以关系也很复杂。所以，出问题的风险也远远高于其他地方。
你为之奋斗了一个世纪，你的重质量的名气，但毁掉它只需要几秒钟。市场就是这样，你过去一个世纪在市场上口碑不好，那即便你今天很努力去追求质量，市场也不信，重建需要很长的时间。
《南方周末》：中国本土汽车企业怎么应对？
罗威：世界汽车工业史上，汽车公司有三种不同的战略方向：1、低价山寨。2、以消费者体验为中心。3、技术和特有品牌。
低价是就是给予价钱够低的产品，中国目前以及韩国的发展模式便是如此。但这种类型已经过时了，因为市场越来越成熟；技术和特有的，就是欧洲和美国克莱斯勒，宝马奔驰，他们有自己特有的车型，与众不同的，让人觉得是唯一的，别人无法模仿而得到价值；而以消费者体验为中心，就是丰田这种，重质量。
但丰田后来偏离了原来的路，而在了不同的方向上徘徊。如果你太短视，太追求利润，就会不重成本，只要卖出去就行，追求产销量。
但丰田即便在今天，仍然是最好的榜样，如何满足消费者的心理和质量控制。他们的模式依然是世界上最棒的模式之一。我们应该看，丰田如何处理危机。最好的办法，是迅速反应，为错误承担责任，即便会影响今天的利润，但对于长期是至关重要的。
中国将成为世界汽车工业的目标，因为他增长的如此之快，所有的企业都要过来，所以，中国企业如何与世界的强手们竞争，将是非常有趣的事情。以后会越来越艰难，即便它增长很快，但依然会越来越艰难，因为越来越多的企业来到这里。中国汽车企业应当尽早找到他们自己的战略定位。
Click here to see the original interview posted by Southern Weekly
A US auto industry expert criticized Wednesday the recent Obama administration's protectionism decision to increase tire tariff on imported Chinese tires as a "blockage" to the circulatory system which will not cure the economy but likely to prolong and worsen the economic problems.
In an interview with Xinhua, Bill Russo, president and founder of Synergistics Limited who has over 15 years as an automotive executive including 5 years of experience in China and Asia, said "trade protectionism does not work historically."
When commenting on the effect of this tariff hike, Russo used historical example to illustrate his point of view. "Trade protectionism does not work historically. During the great depression, US increased import tariff on many thousand commodities, but it did not cure the economy and it most likely prolonged and worsened the economic problems."
He further explained: "You can use the metaphor of protectionism as a 'blockage' to the circulatory system that depends on free and open trading among countries. Currently, industries such as automotive are struggling to recover from the global financial crisis. An already fragile system is made more fragile when such measures are taken because of the net impact on overall global supply chain and logistics costs."
He warned that trade protectionism will restrict the circulatory system of the global economy, and protectionism is contagious which will spread all over the world and worsen the economic situation.
Talking about the long term impact, he said: "Over time, as global economies become more interdependent and as industries pursue cross-border alliances similar to Renault-Nissan and Fiat- Chrysler, Opel-Magna, and others, it will become apparent that such protectionist measures are actually of limited benefit on both the consumer and manufacturer side."
Obama administration imposed punitive tariffs on low-end tires from China this week. The US decision takes effect on September 26.
According to report, Obama cited a surge in Chinese imports that could destabilize domestic manufacturers as the reason for such decision. However, Chinese statistics show tire exports to the United States rose by 2 percent in 2008, and fell by more than 15 percent in the first half of 2009.
Click here to view original posting in China Daily
