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India and China car sales hit by inflation

The Financial Times, June 9, 2011

By Mary Watkins in Mumbai and Patti Waldmeir in Shanghai

New car sales figures from India and China have highlighted the damaging impact of high fuel prices, inflationary pressures and supply bottlenecks on consumer spending in the world’s two largest emerging economies.

The Society of Indian Automobile Manufacturers (SIAM) said that sales of cars in India in May rose 7 per cent to 158,817 compared with 148,425 the year before – the slowest rate of growth in two years.

The deceleration shows how a combination of rising interest rates on car and home loans, as well as the higher cost of fuel and other essential items, is encouraging some Indian consumers to postpone discretionary purchases.

India has raised interest rates nine times in just over a year as it tries to curb inflation. Petrol prices, meanwhile, rose nearly 9 per cent last month.

In China, data released on Thursday showed that May car sales slipped 0.1 per cent year on year, confirming the substantial slowdown evident in the world’s largest auto market since small-car tax incentives were removed at the end of last year. Sales in the first five months rose 6.1 per cent year on year, compared with last year’s full-year growth rate of 32 per cent.

“Given the headwinds present in recent months including rising fuel prices, limits on [vehicle] registrations in megacities, Japan earthquake supply shortages and the elimination of incentives, this is a actually a solid performance and indicates that the market is fundamentally strong,” says Bill Russo, head of Synergistics auto consultancy and former head of Chrysler in China.

Ivo Naumann, China head of AlixPartners, forecast recently that China light vehicle sales would grow 10 to 15 per cent this year despite the current slowdown, as more consumers become wealthy enough to own cars.

SIAM said that, based on the current performance, hitting full-year targets would be difficult. The Indian industry body is forecasting that overall vehicle sales could grow at just 15 per cent in the year to March 2012, compared with 30 per cent last year.

Jatin Chawla, an automotive analyst at IIFL in Mumbai, said he expected to see a slowdown in car sales in India in the next three to four months, adding that a strong pickup in the festive period from September onwards would be critical for carmakers.

Mr Chawla said that Maruti Suzuki could expect to maintain market share as consumers stuck with more conservative carmakers that produced tried and tested models. Maruti – which is currently trying to resolve a strike with workers at its Manesar plant in India who are trying to secure recognition for a new union – recently reported a slowdown in car sales.

Click here to read the original article at FT.com

Overcapacity looms for Chinese automakers

Chinese Manufacturing News, May 30, 2011

The combined sales targets of China's largest automakers could exceed total demand by as much as 32 percent by 2015, as the pace of plant construction outstrips sales growth forecasts.

"The industry may face excessive capacity as early as next year," said George Yin, an analyst with BOCOM International Holdings Co. in Beijing. Privately held Zhejiang Geely Holding Group Co., Great Wall Motor Co. and BYD Co. "are boosting their capacity more aggressively than joint ventures and state-owned firms and exposing themselves," Yin said. China's auto sales fell 0.25 percent in April, the first year-on-year decline in 27 months, after the government phased out tax breaks and subsidies. But automakers are expanding to gain more share in a market that has expanded tenfold in the past decade amid rising affluence and government stimulus policies. Last year, industry sales in China totaled 18 million vehicles. But overcapacity may reach 3 million units next year, according to Yin. Geely, BYD and Great Wall each plans to expand capacity more than 55 percent by 2015, Yin said. Unbalanced supply and demand will affect Chinese automakers more than international companies such as Volkswagen AG and General Motors Co. Chinese consumers will trade up to foreign brands for their second cars, predicts Bill Russo, a Beijing-based senior adviser at Booz & Co. Shanghai-based SAIC Motor Corp., which has partnerships with GM and Volkswagen, will be less exposed to sales and margin squeezes for the same reason, he said. "This will drive the China automakers to more aggressively pursue selling these cars in emerging markets," Russo said. "Otherwise they will have underused their assets." Click here to view article at EworksGlobal.com

Analysis: Saab-Pangda deal faces sobering regulatory test

Reuters, June 2, 2011

(Reuters) - A well-heeled but little-known Chinese company has once again come to the rescue of a fading foreign auto brand: This time Pangda, a mainland auto dealer, has signed a 110 million euro ($157 million) pact with Dutch firm Spyker (SPYKR.AS) to keep its Saab brand on life-support.

But now that the ink is dry and the champagne put away, the two sides face the sobering reality of one remaining, but knotty issue -- winning the blessing of the Chinese government.

Winning that approval is always a daunting and opaque process, but the outcome this time is particularly uncertain and the decision could prove instructive for future suitors in the auto sector.

Indeed, analysts studying the deal's fine print say a pact that adds one more niche player to China's burgeoning auto industry flies in the face of Beijing's goal of anointing just a few local champions that can compete on a global scale.

"While the deal illustrates the value placed by Chinese companies on European brands, it is highly unlikely that the government will approve such an alliance when it works against China's policies to work toward fewer, stronger national brands," said William Russo, an industry veteran who runs a Beijing-based consultancy called Synergistics.

Even so, both Spyker CEO Victor Muller and Pangda's top boss, Pang Qinghua, are optimistic as Pangda finishes its due diligence review of Saab.

Saab's Trollhatten plant, which had been idle for six weeks after parts suppliers ceased delivery because of unpaid bills, is now up and running again after getting an initial 30 million euro injection from Pangda, a straight product-purchase part of the deal that did not require regulatory approval.

Pangda is already contacting Chinese regulators, including the National Development and Reform Commission (NDRC), a powerful agency that will decide the fate of Saab. Pang said the talks had been held in "good spirit."

The partners aim to set up a manufacturing venture in China within a year and have 50 Saab sales outlets in place before the end of 2011.

"I am much more optimistic in this particular case that we would be able to get a positive decision," Spyker's Muller told Reuters shortly after announcing the Pangda deal. "We don't need that decision tomorrow. We have time to prepare any questions that the government may have and demonstrate that this is a proper investment.

"In the worst case, we would have a fantastic distribution partner who would sell a tremendous amount of Saabs in this country," Muller added.

Given its track record of handling Audi, Mercedes-Benz, Fuji Heavy Industries' (7270.T) Subaru and other foreign brands in China, Pangda would indeed be a good distribution partner, analysts say.

It is Saab's local manufacturing ambition that remains a big question mark.

INEFFICIENT, UNFOCUSED BRANDS

Even though China surpassed the United States as the world's largest auto market in 2009, China's indigenous auto industry remains weak and highly fragmented. Major Chinese cities are flooded with American, European and Japanese cars.

There have been a few rising domestic stars, such as SAIC Motor Corp (600104.SS), but most home-grown players are still struggling to shed their image as makers of cheap, less-sophisticated models, popular only in smaller, less affluent inland areas.

China could be a lifeline for bankrupt Western brands and a foreign tie may lend an obscure Chinese company more bargaining power amid the government-driven industry reshuffle, observers say.

But a dying brand with a tally of a little over 30,000 units in 2010, roughly 2 percent of Audi's China sales for the year, adds little value to an industry already plagued by too many inefficient, tiny players.

"Saab has been on the ropes for years," said Michael Dunne, president of industry consultancy Dunne & Co Ltd. "It's always been a quirky, niche brand that appeals to a narrow strand of loyal consumers. I'm not sure how much brand punching power Saab would offer a Chinese firm."

The best solution for the Chinese auto industry is to foster a few big, strong players that have the potential to be the next success stories modeled after Toyota Motor (7203.T) and, most recently, Hyundai Motor 005380.SS, who first became dominant players at home and then moved abroad, observers say.

"If you look around, all these big exporters need to be dominating in their home markets first, that's the normal rule," said Scott Laprise, China auto analyst with CLSA.

"It's very rare that could happen if they are inefficient automakers or unfocused brands at home."

SLOW, PAINFUL CONSOLIDATION

Technocrats in Beijing have long envisioned having only a few big but strong national brands, but the industry is still crowded with more than 100 players, some making as few as several thousand units a year.

Ultimately, China will have two or three big auto groups with annual production of more than 2 million vehicles respectively, plus four or five players making more than 1 million vehicles each, according to a blueprint unveiled in 2009.

Consolidation, however, has been slow and painful due to foot-dragging by local governments eager to build their own auto kingdoms.

Brilliance Auto in the northeastern province of Liaoning has successfully torpedoed years of relentless pursuit by larger rival FAW Group (000800.SZ) in the neighboring province, Liaoning's governor, Wang Min, told Reuters in March.

Chery Automobile and Jianghuai Automobile (600418.SS), two mid-sized cross-province rivals in eastern China, are still locked in a head-to-head rivalry despite repeated merger calls by regulators.

After two major reshuffles since 2007, China's top three auto makers, SAIC Motor (600104.SS), Dongfeng Motor Group (0489.HK) and FAW Group, still accounted for less than half of overall national sales in 2010. The ratio is 86 percent in Japan where Toyota alone had 53 percent of the car market.

"China doesn't need more car companies. If we keep going through this process of all these foreign companies running into trouble and Chinese keep buying them, this probably is only going to prolong the pain it needs to go through in the consolidation," said CLSA's Laprise.

MEDIA OUTCRY

China's track record in overseas acquisition has been mixed at best.

Regulators endorsed Geely's $1.5 billion Volvo takeover, which gives the Chinese full control of the famed Swedish marque, but they rejected an attempt by tiny machinery maker Sichuan Tengzhong Heavy Industries to buy the now defunct Hummer brand in 2009.

In the case of Tengzhong, China's government-directed media gave hints about the outcome. One day after the Hummer deal was announced in June 2009, the state-run Xinhua news agency put out a harshly-worded commentary, warning Tengzhong and others of the consequence of "having their grand dream smashed to pieces" for rushing into dubious and risky deals.

This time, Chinese media are equally critical of the Saab-Pangda tie as well as the earlier engagement with Hawtai that broke up after 10 days. Major financial newspapers and websites carried stories about the NDRC not being very supportive of the Saab tie-up, citing unnamed sources.

Saab's best hope, observers say, is to bring on board a major state-backed Chinese auto group that would have bargaining power with regulators.

But each of the top makers already teamed up with as many as three mainstream global players years ago and would not be easily lured into a Saab tie as a minority shareholder.

Beijing Automotive Industry Holding Co (BAIC), which paid $200 million for some of Saab's old platforms in 2009, is seen as a possible candidate.

"BAIC had a chance to buy the company earlier and decided against it. The feeling then was that it could build its own brand into something much more substantial than Saab," said Dunne & Co's Dunne.

"If the price and terms now become super attractive, then you could see BAIC coming back for the brand."

BAIC, which has invested billions to build its own upscale cars based on acquired Saab technologies, declined to comment.

(Additional reporting by Tim Kelly in Tokyo; Editing by Matt Driskill)

Click here to view the article at reuters.com

Panel Discussion on State of the Chinese Auto Industry

China Radio International, May 30, 2011

China is building its manufacturing base to produce 30 million automobiles by 2020. Who will buy all those cars? Can the domestic market support that level of production?
Guests:
Bill Russo,
-President and founder of Synergistics Ltd and Senior Advisor with Booz and Company.
Yale Zhang,
-Managing Director, AutoForesight (Shanghai) Co. Ltd.

Matthew DeBord,
-Writer and TV commentator.

Hour 1
Hour 2

Click here to listen to the broadcast at english.cri.cn

Russo Joins Panel Discussion at 3rd China Economic Forum

Dalian, China, May 29, 2011

Third Dalian - China Economic Forum agenda

Bill Russo: concerned about the sustainability of economic development

Bill Russo：必须关注经济能否持久性发展

Spyker Wins China Investment as Mainland Carmakers Target Overseas Brands

Bloomberg News, May 17, 2011

China car dealer Pangda Automobile Trade Co. agreed to buy a 24 percent stake in Spyker Cars NV (SPYKR), owner of cash-strappedSaab Automobile, the latest in a line of Chinese companies looking to acquire European auto brands.

Pangda, which sells 20 car brands including vehicles from Toyota Motor Corp. and Volkswagen AG’s Audi division, agreed to pay 65 million euros ($92 million) for its stake in Spyker, the Zeewolde, Netherlands-based manufacturer said in a statement yesterday.

Pangda, which raised 6.3 billion yuan ($968 million) in an initial public offering in Shanghai last month, follows SAIC Motor Corp. and Zhejiang Geely Holding Group Co. in acquiring European brands in a bid for better technology and branding.

“The Chinese have the money, they have the market and they have the ambition,” said Michael Dunne, president of Hong Kong- based auto consultancy Dunne & Co. Chinese carmakers “know no one can beat us when it comes to manufacturing, but we haven’t figured out the brand game yet,” he said.

Moves like Pangda’s allow Chinese companies to “acquire an established brand that has taken decades to build up awareness for,” Dunne said.

Spyker has been seeking a partner to help revive Trollhaettan, Sweden-based Saab, which suspended car production as of late March in a payment dispute with suppliers.

Spyker’s earlier Saab deal with Beijing-based Hawtai Motor Group fell through on May 12 because Hawtai couldn’t get government approval. A day later, the Chinese automaker blamed “commercial and economic realities” for the collapse.

Surprise Bid

Pangda, an auto dealer based in China’s Hebei province, already paid 30 million euros to buy Saab vehicles for distribution in China later this year, Spyker said yesterday.

Deliveries at Pangda last year totaled 470,000 vehicles from 926 outlets across China, according to its website.

The stake purchase by Pangda is a surprise because it has no engineering or production capacity, said Bill Russo, a Beijing-based senior adviser at Booz & Co.

“This is not a company that on the surface can offer much apart from cash that can benefit,” Russo said. “It’s a surprise because you wouldn’t expect a non-car manufacturer to be in the hunt. It shows how much interest there is for foreign assets among Chinese parties.”

Pangda’s stock rose as much as 6.7 percent today, the most in almost two weeks, and traded at 35.14 yuan as of 1:39 p.m. The benchmark Shanghai Composite Index gained 0.4 percent.

Spyker Cars gained 16 percent to 4.11 euros in Amsterdam trading yesterday. The stock has gained 18 percent this year.

Chinese Buyers

Pangda company spokeswoman Li Yan declined to immediately comment when reached by telephone today.

Booming auto sales on the mainland helped the nation overtake the U.S. as the world’s largest auto market over the last two years, generating profit that’s allowed Chinese companies to reach out to Western markets and technologies.

Zhejiang Geely bought Volvo last year in the biggest overseas acquisition by a Chinese carmaker. Geely Automobile Holdings Ltd. (175), its listed unit, had boosted car sales 48 percent and net income 35 percent to 1.18 billion yuan in 2009.

Volvo, which is counting on Chinese demand to help double sales to 800,000 vehicles in 10 years, plans to invest as much as $11 billion worldwide over the next five years to expand in emerging markets.

Rover, MG

SAIC, China’s largest domestic automaker, paid $116 million for the design rights of MG Rover’s Rover 25 and 75 models in 2005 to strengthen its own-brand vehicles. The automaker also helped restart production of the iconic MG sports-car brand in the U.K. this year.

The Chinese partner of General Motors Co. (GM) and Volkswagen AG (VOW) also paid $500 million for a 0.97 percent stake in Detroit-based GM in November.

Sichuan Tengzhong Heavy Industrial Machinery Co. withdrew its proposed acquisition of GM’s Hummer sport-utility vehicle unit, after the bid failed to win Chinese government approval.

To contact the reporters on this story: Liza Lin in Shanghai at llin15@bloomberg.net; Martijn van der Starre in Amsterdam at vanderstarre@bloomberg.net; Kim McLaughlin in Stockholm atkmclaughlin6@bloomberg.net

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net

Click here to read the original article