One-way street for Manganese Bronze

The Financial Times, October 23, 2012

London black cabs

When Manganese Bronze Holdings, the company that makes London black taxis, said it was entering administration this week, many Britons expressed shock and sadness.

“The black cab is part of Britain’s manufacturing heritage,” says Roger Maddison, an official with the trade union Unite.

Yet for anyone following the company and its string of recent mis-steps and misfortunes, the surprise is that Manganese Bronze did not go under sooner.

Eulogies for the company by its customers, some of them aired via Twitter, have been tinged with resentment caused by years of poor service and quality problems.

“The trade has always had a love-hate relationship with the London Taxi Company,” says Peter Rose, branch secretary of the London cab section of Unite, referring to the name by which Manganese Bronze sells cabs.

The company said it was no longer a going concern on Monday after it failed to secure funding from Geely, the Chinese carmaker that owns 20 per cent. This came after the company suspended sales because of a recall of 400 cabs due to problems linked to a Chinese-built component in their steering boxes.

Managers now say the company always faced tough odds because of its small size in a globally competitive business that values scale. “We were always a one-market, small-volume company with limited ability to fund engineering and development of its product,” says John Russell, chief executive.

Just five years ago, the company was still profitable and on a positive trajectory, with cash in the bank and a new joint venture signed with Geely, which wanted to make London taxis in Shanghai and sell them to international fleet customers such as hotels.

In fact, 2007 was the last year the company turned a profit. The following year, cabbies reported a spate of engine fires, an episode that would cause the company to recall and rework 5,400 of its TX4 flagship taxis.

While Manganese Bronze had updated its cabs over the years, they were still being built on a basic structure that traced its heritage back to the first black taxi, dating from 1948.
Despite its outdated product, the company enjoyed a protected market because of a rule that London taxis have a 28ft turning circle.

But by 2008, the TX4 faced serious competition from Mercedes-Benz’s Vito, which met the 28ft circle rule but was more fuel-efficient and cheaper to run.

In just over four years, the car has captured 38 per cent of the London market. Nissan is also coming to London with its own black taxi next year.

In China, the company faced delays getting its joint venture up and running, then the credit crunch wreaked havoc on its plants for international sales.

Manganese Bronze restructured in 2010 to take costs out of the business, including by outsourcing more parts overseas, especially to China. But in August of this year, it shocked the market by reporting a £3.9m hole in its accounts, which it blamed on a new IT system.

“We had a massive period of change going on in the business,” says Mr Russell. “We introduced a new computer system, and the finance function wasn’t monitoring the business properly.”

As of last week, the company was still a going concern, but would have needed a “large sum of money” to stay in business, he said.

Geely, which also owns the much larger Swedish carmaker Volvo, was unwilling to do this on terms the company could reasonably repay.

“Geely’s decision not to step in to rescue them is likely based on the financial risk that doing so would entail,” said Bill Russo, president of Synergistics, an auto consultancy in Beijing.

Yang Xueliang, Geely’s chief public relations officer, said that production of the black cabs in Shanghai would not be suspended.

“We believe the brand, with a long history, good reputation and unique positioning as a professional cab, still has great market potential,” he said.

Click here to read the article at FT.com

Chinese carmakers to face hard time moving up-market; need to perfect processes and technology

The Economic Times of India, July 7, 2012

Like many Chinese, Zong Zhaoxiang wishes nothing but the best for the Chinese car industry - yet he won't be buying a Chinese car anytime soon. The 52-year-old chairman of a Shanghai chemical company, Zong said he expects Chinese branded cars to have bright prospects.
However, he loves the comfort, quality and image projected by his black Mercedes-Benz S-class, and he said he may buy another Mercedes-Benz model or a BMW in the future.
"If Chinese-made cars were better designed and could demonstrate your status, more people might buy them," Zong said. Not all of Zong's compatriots can afford a Mercedes-Benz, of course. But most of them still prefer foreign brands to domestic ones.
Volkswagen and General Motors sold the greatest number of vehicles in China in 2011, the world's largest car market, followed by NissanHyundai and Kia. All domestic car makers combined captured only about 30% of their home market, the lowest proportion of any major economy.
This is not what Beijing intended. In contrast to other "strategic" industries like telecom and banking, the auto industry has been gradually opened to foreign investment over the past two decades, as Beijing allowed foreign car makers to form joint ventures with domestic partners.
But the goal was always to help Chinese manufacturers acquire the technologies and expertise necessary to build their own strong brands, an outcome that eludes the industry.
Race to the Bottom
State-owned car makers - such as Shanghai Automotive Industry (Group) Corporation (SAIC), First Auto Works (FAW) and Chang'an Automobile Group - have begun paying more attention to building their own brands, at Beijing's urging.
It's been an uphill battle. With shorter histories, inferior technology and smaller marketing budgets, their products are mainly confined to the low-cost segment, where profits are thinner.
Meanwhile, independent Chinese carmakers such as Geely, Chery, BYD and Great Wall have introduced their own lowprice models, intensifying competition. Most Chinese brands continue to trade on the China's traditional forte: driving down manufacturing costs and making money on high volume and thin margins.
In contrast, foreign car brands charge double or more and still sell far more units, all on the strength of their brand, technology and styling. The playing field has tipped further towards foreign players in the past few years. First, Beijing ended a tax break on cars with engines smaller than 1.6 litres last year.
"The companies with smaller vehicles tend to be Chinese-branded carmakers. So they benefitted most from the stimulus and were hurt the most by the removal of the stimulus," said Bill Russo, a senior advisor at consultancy Booz & Co and the former head of Chrysler Asia.
The policy had helped overall vehicle sales to grow 46% year-on-year in 2009 and 32% year-on-year in 2010 - unsustainable rates of expansion, Russo said.