GM’s China Bet Mimics Toyota’s Bet on U.S. Last Century

Bloomberg Business Week, April 29, 2013

GM’s announcement at the Shanghai auto show this month that it is spending $11 billion by 2016 

on new plants, products and people in China demonstrates a change in priorities. 

By Keith Naughton

General Motors Co. (GM), the largest carmaker in the U.S., is shifting its center of gravity to China, where it sells more cars and now invests more money.

GM’s announcement at the Shanghai auto show this month that it is spending $11 billion by 2016 on new plants, products and people in China demonstrates a change in priorities. Since its 2009 bankruptcy, GM has announced $8.5 billion of investment in the U.S., where it has a more modest assembly-plant footprint.

GM’s focus on China parallels the strategy Toyota Motor Corp. (7201) employed in the last century, when the Japanese automaker poured investment in the U.S. market, where it saw its greatest growth potential. Now, Detroit-based GM is taking the lead in the world’s largest auto market by building four new assembly plants in China to boost its factory capacity to 5 million vehicles annually, twice what it sold in the U.S. last year.

“This is what the Japanese did in the ’70s when the U.S. became their most important market,” said Rebecca Lindland, an automotive consultant with Rebel Three Media & Consultants in Cos Cob, Connecticut. “What GM is doing is really smart because it’s proactively investing in a market that, for the foreseeable future, is going to be the world’s largest.”

GM rose to a 52-week high of $30.71 last week. It rose 0.3 percent to $30.58 at 9:52 a.m. New York time. It gained 5.8 percent this year through April 26 compared with an 11 percent increase in the Standard & Poor’s 500 Index. The company will announce quarterly results May 2.

‘Center Stage’

GM already is the No. 1 automaker in China, with 15.1 percent of the market in the first quarter on growing sales of Buick and Chevrolet models and a thriving commercial-vehicle joint venture. It’s rolling out 17 models there this year, including a renewed push to sell its Cadillac luxury line to the increasingly affluent Chinese. And it’s expanding its Chinese dealer network to 5,100, from 3,800.

“China has become the center stage in the battle for dominance of the 21st century global auto industry and GM is investing to secure its leadership position,” said Bill Russo, president of auto consultant Synergistics Ltd. in Shanghai. “GM is investing to ensure that they can differentiate themselves from the crowd by having a full product shelf and a dealer network.”

China is central to Chief Executive Officer Dan Akerson’s plan to diversify GM’s sources of profits around the planet. While North America remains GM’s biggest profit center, China has emerged as the leader in other key measures -- sales, output and investment. Analysts say it’s just a matter of time before China becomes GM’s biggest profit center.

“It wouldn’t be difficult to see this flip sometime between now and 2020 for sure,” Jeff Schuster, an analyst with LMC Automotive, said of China’s potential to become GM’s profit leader.

‘Big Bet?’

GM’s factory build-up will give it 17 assembly plants in China, said Bob Socia, GM’s top executive in the country, exceeding the 12 it has in the U.S. GM’s dealer count in China will also surpass the 4,343 showrooms it has in its home market. GM has been selling more vehicles in China since 2010.

While China’s economic growth slowed to 7.7 percent in the first quarter, automakers still see it as an attractive market.

Asked why GM is making such a large bet on China, Socia scoffed at the idea of a gamble.
“Big bet?” he said. “We’re confident about playing here in China. We’re here for the long term and you’ve got to lead and be strong in your commitment. We’re very bullish.”

Even more bullish than others. While LMC forecasts the market reaching 32 million vehicles by 2020, GM predicts it will grow to 35 million by 2022. That’s up from 19.4 million last year. China in 2009 surpassed the U.S. market, where dealers sold 14.5 million cars and light trucks last year, the most since 2007. The U.S. record is 17.4 million in 2000.

Chinese Vehicle Market Slow to Turn Green

Wards Auto, April 19, 2013

by David Green

Chinese policy makers appear to be favoring hybrid vehicles with subsidies.

BEIJING – With the dust now settled from last month’s handover of power in Beijing, policymakers responsible for China’s auto sector seem to be favoring hybrids as a step toward expanding green-vehicle use.

The initial stage of the push to promote so-called new-energy vehicles, and with them a differentiated technology standard that China can export, now is widely acknowledged to have failed, at least regarding promoting sales of battery-electric vehicles.

Axel Krieger, analyst at management consultancy McKinsey’s office in Beijing, tells WardsAuto: “The frustration is that the policy is unclear, there are hardly any EVs to buy, the infrastructure is not there and there are disparate local solutions for local OEMs.”

Data from the China Association of Automobile Manufacturers (CAAM) shows only 12,791 new-energy vehicles were sold in China last year, the vast majority to government projects.

A little more than half were passenger vehicles (public buses accounting for most of the remainder), and these were spread across a range of domestic suppliers, with Chery’s QQ3 electric vehicle the top performer with 3,129 deliveries.

Industry sales primarily were EVs, but including a handful of hybrid-electric, plug-in hybrid-electric, solar, fuel cell, natural-gas hybrid and liquefied-petroleum-gas-fueled vehicles.

This is far from the government’s interim target of having 500,000 green vehicles on the roads by the end of 2015, let alone its projection for 5 million by 2020.

These frustrations were voiced by Beijing Automotive Group Chairman Xu Heyi, who told a press conference in mid-March that government sales accounted for almost all his state-owned company’s 2012 sales of 1,000 alternatively powered vehicles.

This is because of an underdeveloped recharging infrastructure: Beijing has just 47 EV charging stations, compared with 67 in Geely’s headquarters city of Hangzhou.

And while Industry Minister Miao Wei last month affirmed the government’s intention to continue encouraging green-vehicle sales though consumer and producer financial support for another three years, more flexibility is planned, including more subsidies for hybrids.

Notably, a new tier system will base subsidies not on vehicle type but on its energy-saving potential. One plan stipulates offering RMB3,000 ($483) per kilowatt-hour capacity of an auto battery, which can cover hybrids as well as EVs.

A 3-year trial program that expired in December provided a subsidy of RMB60,000 ($9,500) for the purchase of EVs and RMB50,000 ($8,060) for plug-in hybrids. Hybrid electrics were eligible to receive just RMB3,000, but the new subsidy framework removes the restrictive focus on EVs, to which the domestic industry so far has failed to respond.

“A shift is now taking place whereby the government is moving towards encouraging hybrid vehicles as a stepping stone to increasing the number of cleaner vehicles,” IHS Automotive analyst Namrita Chow says.

Industry-watchers say the central government’s promotion of hybrids could favor foreign auto makers and joint ventures, given their superior quality, reliability and warranty protection.

“I think global players like Toyota will benefit the most,” says Boni Sa, IHS Automotive’s China light-vehicle production manager. “Even if the government subsidizes hybrid vehicles in China, the hybrid cars will still be more expensive than the conventional models for both global and domestic” brands.

The FAW-Toyota JV is developing a hybrid version of the Corolla, Sales Manager Zhang Sijun says, and will increase investment in other hybrid models going forward. A BMW China spokesman confirms new-energy vehicles will be the focus of a forthcoming JV brand under the German auto maker’s existing arrangement with Brilliance Auto.

Another potential weakness in the revamped green-vehicle policy is the ability of local and city governments to have different policies, which might discourage the development of vehicles that are salable elsewhere in China or abroad.

Even as industry minister Miao was announcing the central government’s new subsidy program, officials in Tianjin, Shenzhen and Guangzhou were issuing details of their own, unrelated policies to stimulate local investment, prompting Yesheng Ji, deputy secretary-general of CAAM, to warn against such local protectionism.

“The pilot allows for multiple solutions to coexist. Different companies and local governments have different approaches – there’s no consistency,” says Bill Russo, a Booz & Co. senior advisor who cites BYD’s partnership with multinational ABB Group to develop charging infrastructure in Shenzhen as an example.

Wang Binggang, chief consultant to the Chinese government’s push to promote new-energy vehicles under the 11th Five-Year plan, wants the new subsidies extended throughout the green-vehicle chain, from auto makers to charging stations and upstream parts-replacement facilities.

Whether the new program adopts this kind of structured approach, even offering electricity tax concessions to users of EV charging stations, will go a long way toward determining its success, he says.

“The difficulty with reform in China is that the local regions can do a lot of stuff out of sight,” says Greg Anderson, principal at Pacific Rim Advisors. “They have been hammering on about auto industry consolidation, but that has not happened. There are new firms springing up all the time, because local governments are incentivized by economic growth.

“That’s how the (Chinese Communist) Party is built, and until those political and structural issues are taken care of, there is little chance of progress.”

Yet, Anderson also offers a note of cautious optimism. “(Premier) Li Keqiang is a trained economist – he gets this. There’s been a change at the top, there is the possibility of change, but we don’t know how effective it will be for years,” he tells WardsAuto.

Russo expects immediate progress in green-vehicle sales to public-transportation operators, including taxis. This could lead to more government vehicles going electric, although issues including public sanitation and postal service must be addressed before top officials abandon their premium black-tinted-window Audis.

Indeed, Anderson suggests: “People want to buy the most car they can that impresses their friends. It’s just not fashionable to drive a car that’s seen as environmentally friendly.”

Click here to read this article at WardsAuto.com

GM-VW China Rivalry Heats Up as Both See 3 Million Auto Sales

Bloomberg News, April 21, 2013

Click here to read the article published in The Washington Post

General Motors Co. and Volkswagen AG, the largest foreign carmakers in China, both forecast sales will climb to 3 million vehicles in the country this year as the rivalry heats up for a second year.

GM is “cautiously optimistic” and expects its sales to reach that level if market fundamentals are strong, Bob Socia, head of China operations, said in an interview at the Shanghai Auto Show yesterday. His Volkswagen counterpart, Jochem Heizmann, said a day earlier that the German carmaker expects deliveries to reach that number or beyond. Both companies sold about 2.8 million vehicles in China last year.

The projections signal competition -- GM’s lead over VW in China shrank to less than 1 percent in 2012 -- will intensify as their sales slow in their biggest market. At stake is supremacy in China, which may become the first market with more than 20 million vehicle sales this year, and where car-ownership levels are still a fraction of those in the U.S. and Western Europe.

“In terms of their presence, GM may be in a better position with their strong network and a more complete product portfolio,” said Bill Russo, president of automotive consultancy Synergistics Ltd. Still, most carmakers “are probably anticipating market expansion to be not as robust as it has been in the past, and the supply-and-demand imbalance is creating additional pressure on pricing,” he said.

Heizmann’s Apology

Wolfsburg, Germany-based VW, facing a European auto market headed toward a 20-year low, is seeking to rebuild its image after a state broadcaster’s report on defective gearboxes in VW cars prompted the German company to recall a record 384,181 vehicles in China. Heizmann expressed his personal apologies over the matter at an April 19 event in Shanghai.

Apologies may not suffice. More than a dozen stone-faced riot police in black flack jackets and helmets lined the VW stand yesterday morning. Across the aisle at the Buick stand, a young American couple modeled beside the Riviera concept car, where a man wore a silver shark-skin suit evoking Frank Sinatra, while female models preened in a metallic silver sheath mini- dresses and high heels.

The incident hasn’t deterred the German company’s expansion plans. VW forecast it will increase its China line-up 29 percent to 90 models by 2015, invest 9.8 billion euros ($12.8 billion), and expand production there 60 percent by 2018.

‘Squeezed’ Margins

GM, which outsold VW in China last quarter after trailing the German carmaker for two quarters, isn’t ready to relinquish the lead. The company showcased a record 53 vehicles at the Shanghai show, including the Buick Riviera concept vehicle, the Chevrolet Cruze hatchback and Cadillac Escalade ESV. The company plans to spend $11 billion in China by 2016.

Still, GM is mindful of the competition and China is a market where margins will “always be squeezed,” he said.

There’s more to China than just GM and VW as other previewed their offerings to Chinese consumers at the Shanghai show. Sport utility vehicles -- the fastest growing segment of China’s auto market -- stood out. Honda Motor Co. showed its concept Acura SUV-X that will be produced in China, Ford Motor Co. said it plans to debut two small SUV models in the market this year, and Daimler AG showed off its planned Mercedes GLA.

Chrysler Group LLC’s Jeep, which became the first western auto brand built in China in 1983, may resume Chinese production by the end of next year, starting with the Cherokee, Mike Manley, head of the brand, said in an interview. Ford has received an “incredible” number of pre-orders for its EcoSport and Kuga SUVs that debut this year, Jim Farley, the automaker’s global marketing chief, said in an interview.

SUVs Shine

At GM’s Cadillac stand, a pearl-white Escalade ESV rotated on stage as a model in a white brocade gown posed for a throng of photographers. Curious showgoers piled into the front and back seats of SUVs at GM’s Buick and Chevrolet stands.

“SUVs are considered a status symbol of the advancements you’ve made so far in your life,” said Manley. “As you get better ride and handling and fuel economy in SUVs, you see people migrating out of passenger cars.”

Automakers have reason to be optimistic about SUVs. Sales of the vehicles will probably rise 23 percent to 2.46 million units, outpacing all segments in 2013 for a second straight year, according to the state-backed China Association of Automobile Manufacturers. Chinese SUVs are also doing well, with Great Motor Co.’s sales of its Haval vehicles surging 92 percent during the first quarter.

Crowding Market

Luxury carmakers continued their push to capitalize on China’s growing number of wealthy consumers. Daimler said it plans to increase its number of dealers by about 30 percent this year and BMW’s Rolls-Royce is planning to expand its network by 25 percent.

The Chinese market, cluttered with more than 90 brands of vehicles, may get even more crowded as Volvo Cars and Jaguar Land Rover prepare to begin production in the country. The extent of the choices available, can sometimes overwhelm consumers.

“There are so many options nowadays,” said Kenneth Zheng, 32, who was checking out Renault SA’s 320,800 yuan ($51,900) Talisman sedan at the Shanghai show. “I am totally lost just by touring around here. Popular models like Buick or Passat may be the safest choice.”

Nissan Motor Co.’s Infiniti will make two long-wheelbase models in the country, following VW’s Audi, Daimler’s Mercedes and BMW in stretching the length of their vehicles to cater to Chinese tastes.

Japanese Rebound

Nissan, which outsells Toyota Motor Corp. in China, said it’s expecting a 16 percent increase in sales at its Chinese venture this year as anti-Japan sentiment, triggered by a dispute over uninhabited islands last year, subsides from the protests that flared in September. Nissan, Toyota and Honda all saw their China sales fall last year, a slump that extended into the first quarter.

Still, for companies such as Nissan, the bigger challenge may be figuring out how to make cars that appeal to Chinese youths. Young people today are very tech-savvy, very much connected and social media is very important, so vehicles should bring friends together in the car and allow them to share social media content, according to Nissan Executive Vice President Andy Palmer.

“If you look at all the segments all around the world, the single biggest segment globally is ‘ba ling hou,’” Palmer said in an interview, referring to the Chinese word for people born in 1980 and beyond. “240 million people in the segment and nobody is really addressing on the global maker level. We think the needs of these customers are going to change the face of automotive not just in China, but globally.”

--Alexandra Ho, Christoph Rauwald, Keith Naughton, Tian Ying, Ma Jie, Yuki Hagiwara, Stephen Engle and Anna Mukai. Editors: Young-Sam Cho, Chua Kong Ho

Mulally Hones Ford's China Focus

The Wall Street Journal, April 15, 2013

By MIKE RAMSEY

Associated Press

Ford's Alan Mulally, shown in Beijing last August, is spending more time in China amid big new investments.

SHANGHAI—Just a few years ago, Alan Mulally, Ford Motor Co.'s chief executive, spent about 10% of his time on matters related to China. These days, the world's largest auto market consumes about one-third of his and his top lieutenants' schedules, each week.

The increased focus is key for Ford's future because the company has a lot of ground to make up here. A latecomer to China, the Dearborn, Mich., auto maker has about 3% of the Chinese market. Volkswagen AG  puts its share at 18.2% and General Motors Co. calculates its 2012 share at 14.6%.

Moreover, Ford is spending big to catch up. The company has committed to spending $5 billion to build five plants in China to go along with the four it has now, and will need to increase its market share to be able to use all the plants' output. The auto maker also is aiming to double the number of dealerships to about 800 by 2015, bring 15 new vehicles to China and launch the Lincoln brand here in 2014.

"Clearly this is going to continue to be the highest rate growth for us, both in revenue and profits, over the next few years," Mr. Mulally said in an interview on the eve of this month's Shanghai auto show. "The entire team is spending more and more time in Asia-Pacific."

On Monday, Ford Asia chief David Schoch predicted the company's market share here might reach 6% of sales after Ford completes a model build-out in 2015.

Many foreign companies in autos and other industries are now getting a sense of the subtleties and complexity of operating in modern China. In recent weeks, even long-established foreign companies with legions of Chinese fans have run into unexpected difficulties.

Apple Inc. made a public apology recently after state-run media published reports about customer-service flaws. Volkswagen was pressured into an expensive transmission recall after another Chinese TV report called into question the quality of its gearboxes. Likewise, Japanese auto makers are still struggling to regain sales after a heated dispute over uninhabited islands in the East China Sea pummeled their sales in China.

After years of approving new auto factories, the Chinese government has become concerned about excess production capacity and now tends to be more cautious about approving new plants. The government also is keen to see domestic brands become more competitive with foreign makes, Mr. Mulally said.

Ford began producing cars in a Chinese joint venture in 2003, four years after GM and 18 years after Volkswagen. The late arrival caused Ford to miss out on partnerships with the larger car companies in the coastal cities of Shanghai and Beijing, where the bulk of car buyers have been in the past decade.

Ford has a joint venture with Chongqing Changan Automobile Co., based in Chongqing, in the country's interior. Ford is hoping to catch a second wave of growth as economic development spreads to second- and third-tier cities, which tend to be less wealthy than Beijing and Shanghai but still have huge populations.

In a reflection of its efforts to put China into the center of decision-making, Ford's U.S. management is shifting U.S. meetings to early in the morning or late in the evening in order to better accommodate executives in China, who are 12 hours ahead.

"We get up really early, we stay really late," said Mark Fields, Ford's chief operating officer, who recently ran a business meeting from a conference room in Shanghai until past midnight local time. "It gives us the sensitivity that we are a 24-hour business."

The company soon will start producing a new 1.5-liter, four-cylinder engine that was developed in part to avoid a Chinese tax of about $300 a year on vehicles with engines larger than 1.5 liters. The new engine will be sold in markets around the world, including the U.S., beginning in September. It will be offered alongside a 1.6-liter motor in some markets.

Mr. Mulally has decades of experience and many business and governmental contacts in China as a result of his 37 years at Boeing Co. BA +2.14% and the last six at Ford. Two weeks ago, he was one of 100 delegates at the China Development Forum in Beijing, a gathering that brought together China's new political leaders and CEOs from around the globe.

"It was very exciting because we had all of the new Chinese leadership there," Mr. Mulally said. Deciding to push forward with the $5 billion expansion was "one of the most important decisions we made six years ago. The minute we made the decision, we were very focused on it, especially me."

He also makes visits to the Chongqing mayor's International Economic Advisory Council.

"At the most fundamental level, being involved is really, really important," Mr. Mulally said. "We feel very, very comfortable with our position there."

In the first quarter of this year, Ford's sales in China rose 54% over a year earlier, driven by its Focus compact. It just started selling the Kuga sport-utility vehicle, a clone of the Escape SUV, and the larger Explorer SUV, which is being exported to China this month.

Although GM and Volkswagen continue to expand in China, Ford is gaining on its Japanese competitors, which have been hurt by the political backlash stemming from a dispute between China and Japan over islands in the East China Sea. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. have suffered declining sales amid the tensions.

"You've got this situation where you have a whole bunch of Japanese brand [shoppers] looking for something else," said Bill Russo, founder and president of auto consulting firm Synergistics Ltd. and a former DaimlerChrysler AG  executive. "Ford is really hitting its stride at the best possible moment."

A version of this article appeared April 16, 2013, on page B7 in the U.S. edition of The Wall Street Journal, with the headline: Ford CEO Revs Up Auto Maker's China Role.

Urban middle class boosts China car sales

The Financial Times, April 11, 2013

Strong economic growth and consumer confidence boosted first-quarter car sales in China as the mainland shook off last year’s weakness to resume strong double-digit growth.

Light vehicle sales in the world’s largest vehicle market rose 17 per cent to 4.42m in the first three months of the year. In March alone, sales of cars, sport utility and other passenger vehicles climbed to almost 2m, the China Association of Automobile Manufacturers said on Thursday.

“China’s auto industry delivered solid double-digit growth, driven by continued expansion of its population of urban middle-class buyers,” said Bill Russo of Synergistics auto consultancy in Beijing and the former head of Chrysler in China.

But he warned against over-optimistic assumptions about future market growth, which has led to excess capacity in the past, especially among state-owned domestic carmakers.

Local independents Geely and BYD recently said they were optimistic about auto demand this year with the new government leadership in place.

“We are confident about this year’s growth,” said Lawrence Ang, executive director at Geely in Hong Kong last month. “China’s overall economy will be improved from last year, helping to boost vehicle demand.”

However, Bernstein Research analyst Max Warburton cautioned in a recent note that despite stronger than expected first-quarter sales in China, future yearly growth was not likely to exceed 6-7 per cent.

“Capacity additions still look set to outstrip demand,” he said, adding that he expected the industry to add at least 3.8m units of capacity by the end of the decade.

European and American car brands continued to take market share from Japanese rivals in China in the first quarter, auto analysts said, as the continuing political impact of a dispute over a set of islands left Japan’s carmakers struggling to recover ground.

Luxury car sales in China continued to moderate from previous high double-digit levels, partly affected by the government’s austerity programme, which may have caused some buyers to delay ostentatious consumption.

But medium-term growth in the luxury sector is expected to remain strong as few retail analysts are predicting permanent impact from the austerity campaign.

“Compared to the US, Chinese [luxury car sales] will continue to grow at a stable and sustainable rate whereas the US and Japan are simply recovering from lost volume. China’s luxury market will likely double in size over the next five years,” Mr Russo said.

Click here to read this article at FT.com

Chinese Dilemma: 170 Auto Makers

The Wall Street Journal, April 10, 2013

TAIZHOU, China—The U.S. auto industry has long had three big domestic car makers. China has more than 170, including tiny Zhejiang Jonway Automobile Co.

Small-Car Companies Undeterred in China

Jonway makes a sport-utility vehicle named after the Airbus A380 jumbo jet. Its A380 SUV starts at 70,000 yuan ($11,272) and is marketed as a smooth, low-maintenance ride.

Customers aren't buying it. Last year Jonway sold about 5,000 cars compared with the more than 7,000 that Volkswagen AG sells on average in China every day.

Little Jonway isn't fazed by the market reception. It plans to release a new SUV model this year, beef up marketing and is considering exporting vehicles to South America. It continues to work on its technology with the help of supportive local officials, and it just received a license from the Chinese government to begin making electric cars.

"China is the largest car market in the world, and it still has potential to grow. Our ambitions are congruent with reality," insists Alex Wang, Jonway's 31-year-old, U.K.-educated chairman.

Optimistic Chinese auto executives like Mr. Wang send shudders through the rest of the global auto sector. Industry watchers worry that the world's No. 1 auto market could soon be awash in overcapacity. That would rev up competition in China and pressure companies here to export more of their cars.

"We may see high levels of overcapacity and significant margin pressure within the next three to five years," said Bill Russo, president of auto consulting firm Synergistics Ltd. and a former Chrysler executive. He estimates that China's overcapacity in three years could total 10 million cars, roughly equivalent to Japan's 2012 auto production.

Overcapacity worries aren't confined to cars. China has a glut of factories in industries ranging from steel to construction equipment to solar panels. Beijing encouraged heavy investment in those industries to move away from its dependence on low-level manufacturing. While central government officials signal that they want to tamp down on capacity, local governments are still backing local champions that are major employers.

China's car-making capacity is set to soar in coming years. General Motors Co., Volkswagen and Ford Motor Co . are building new factories and assembly lines. China's top 10 auto groups—which make both foreign and domestic brands—are expected to have combined capacity to build about 35 million vehicles a year by the end of 2015, according to their previous announcements, compared with 18 million vehicles in 2012.

But sales growth is slowing. McKinsey & Co. forecasts that China's auto market will grow by an average 8% a year through 2020, down from a compound average rate of 24% between 2005 and 2011.

Experts expect domestic brands will incur the brunt of the slower gains because foreign brands such as GM and VW enjoy a reputation for quality among Chinese drivers. Foreign brands currently make up roughly two-thirds of China passenger car sales. Last year, Dong Yang, vice chairman of the semiofficial China Association of Automobile Manufacturers predicted about half of domestic brands may disappear in coming years.

But many Chinese companies enjoy subsidies designed to bolster local champions. For example, the western city of Chongqing said last June it would give a subsidy of up to 3,000 yuan for buyers of some models of vans made by local car maker Chongqing Changan Automobile Co., while FAW Car Co. said in August that the northeastern city of Changchun would offer a subsidy of between 3,500 yuan and 7,000 yuan for buyers of some cars made by the company. The U.S. last year filed a case before the World Trade Organization arguing that China unfairly supports auto companies and parts makers, an accusation Beijing disputes.

Many are also looking abroad. Last year Chinese auto exports rose 19% to one million vehicles, mainly to markets in the Middle East, Russia, and South America, according to the trade association.

Chinese officials have acknowledged the problem. In July, the Ministry of Industry and Information Technology said China has more than 171 car, truck and bus manufacturers, and said passenger vehicle producers that make fewer than 1,000 vehicles for two years in a row will be ordered to overhaul production.

China has auto makers even smaller than Jonway. According to research firm IHS, a company called Tianqi Meiya sold 77 passenger cars last year. The company, in the north Chinese city of Tianjin, didn't respond to requests for comment.

Jonway builds its vehicles in Taizhou, an eastern city where local officials are pushing to create their China's version of Detroit. According to a plan the city issued in 2010, officials committed to giving local auto makers land and helping them recruit talent, and it allowed banks to roll over loans to cash-strapped companies.

Other auto companies doing business in the region include Zhejiang Geely Holding Group Co., the Chinese auto maker which acquired Volvo Car Corp. from Ford Motor Co. in 2010.

Jonway's U.S. parent, a Santa Rosa, Calif., electric vehicle company called Zap, said in its most recent annual securities filing that the Chinese auto company received $1.6 million in subsidies and incentives in 2010 and 2011 combined. Jonway reported a 2011 loss of $10.2 million on sales of $54.3 million.

Mr. Wang's father and Jonway's founder, Wang Huaiyi, is a major Zap shareholder and a member of the board. The Wang family started its China-based business in the early 1980s, producing everything from buttons for clothes to parts of electric fans. In the 1990s it began supplying parts for motorcycles made by Geely before the latter began making cars.

Inspired by the high-profile success of Geely Chairman Li Shufu, in 2003 the senior Mr. Wang invested 600 million yuan, or about $72 million, in an SUV manufacturing facility with an aim at targeting China's growing middle class.

The younger Mr. Wang began managing Jonway in 2008 two years after returning from studying in the U.K. "I've never thought of the overcapacity problem," he said. Jonway "has done very well in the motorcycle business and it needs a bigger platform to grow. The car industry is just the platform through which we can grow stronger."

Jonway used Toyota Motor Corp.'s RAV4 SUV as a reference when designing the five-door A380, he said. Its sales grew to nearly 8,000 in 2010 from 4,500 the year before.

But sales began slumping in 2011 with China's decision to end buyers subsidies for cars with engine capacity of 1.6 liters or smaller. Mr. Wang said he believes the sales problem is marketing.

"Building brand recognition needs time," he said. "Jonway is in urgent need of improved marketing."

Jonway aims to sell 20,000 SUVs and minivans this year, and plans to add 50 dealers to its existing network of 100 dealers across the country. Other efforts include bigger dealer incentives, more advertising spending and a push to raise its profile at this month's auto show in Shanghai, he said.

It is also eyeing exports, targeting volume of 3,000 vehicles in emerging markets such as South America and Africa, Mr. Wang said. Jonway parent Zap has a team of Spanish-speaking sales representatives, "which is a unique edge to us."

— Rose Yu

A version of this article appeared April 10, 2013, on page B10 in the U.S. edition of The Wall Street Journal, with the headline: China Lets 170 Auto Makers Bloom.

Click here to read the article at wsj.com

Bill Russo to Discuss Chinese Auto Market at Investor Conference Call

Investor Conference Call, April 4, 2013

Thursday, April 4, 2013, 10:00 AM EDT

Chinese Auto Market at an Inflection Point

Slowing Sales and Crowded Competitive Landscape Challenge Ford and GM

Bill Russo is President of Synergistics, Ltd, a consulting firm to the auto market and he has more than 25 years of experience in the industry. Prior to Synergistics he was VP of Chrysler Northeast Asia, where he successfully negotiated and secured government approval for six vehicle programs with three different Asian partners. In this time period, he launched a regional holding company as well as two distribution companies and oversaw the industrialization of the first Chrysler and Dodge-branded vehicles in Asia. As Director, Product & Business Strategy at DaimlerChrysler, Bill led the integration of three key functions: strategic and long-range product planning and the capital investment plan. He holds a U.S. Patent for his innovative efforts towards reducing automotive new product development cycle time and is a published author and opinion leader whose viewpoints have appeared throughout several media outlets.

-  China’s automotive industry has arrived at an inflection point, following a period of rapid growth that culminated with a stimulus-driven surge in demand in 2009-2010. Since then, the industry has sharply decelerated, with total auto sales growth slipping to 2.5% in 2011 and 4.3% in 2012.   Although overall market growth has decelerated, there is still sustainable and healthy activity occurring in lower-tier regions of the country, as well as in certain segments such as premium cars and compact SUVs.

-  With our expert, Bill Russo, we’ll analyze how the Chinese auto market is downshifting to a more sustainable growth pattern in line with GDP.  We’ll evaluate the intense competition among the foreign and domestic brand vehicle manufacturers as they attempt to adjust to this new pattern while maintaining profitability. We’ll examine consolidation opportunities and look at automotive suppliers and dealership dynamics. We’ll conclude with a focus on General Motors and Ford and how the companies are positioned to pursue expansion in the Chinese auto market.

For more information, contact:

Michael Cohen

646-783-6052

mcohen@colemanrg.com