China’s indigenous brand policy backfires

The Financial Times, May 5, 2014

Even the most ardent car lovers would struggle to identify some of the vehicles built by major multinational auto companies in China.

A BMW Brilliance Zinoro, an SGMW Baojun and a Dongfeng Nissan Venucia are among the “indigenous” brands that the Chinese government requires foreign-invested joint ventures to develop in return for approvals to expand production capacity in the world’s largest auto market.

SGMW – GM’s joint venture with SAIC Motor and Liuzhou Wuling Motors – embraced the dictat by developing popular Baojun sedans and mini-cars. SGMW sold more than 100,000 Baojuns in 2013, up almost 20 per cent.

Priced at just Rmb50,000 ($8,000) to Rmb70,000, Baojun’s success has come primarily at the expense of China’s struggling domestic automakers, suggesting that the policy has had at least one unintended consequence.

“After several decades in China, the earliest models introduced by the foreign joint ventures are now priced as cheaply as Chinese brands,” Liu Bo, vice-president of Chang’an Auto, said at a seminar held in conjunction with April’s Beijing car show. “Their ability to focus global R&D resources on the China market is putting a lot of pressure on us.”

March sales of Chinese brand sedans fell 12 per cent year-on-year, as local automakers lost their market lead in the segment to their German rivals led by VW. “The indigenous brand policy is really dumb because all it does is cannibalise the local Chinese brands,” said Janet Lewis, head of Macquarie Securities industrials research team in Hong Kong.

The damage that Baojun and other joint ventures’ indigenous brands, such as Nissan and Dongfeng Motors’ Venucia, are inflicting on Chinese car companies could explain why the government does not appear to be putting much pressure on multinationals who have only done the bare minimum.

BMW’s joint venture with Brilliance Auto “rebadged” the German company’s X1 and electrified it for China’s anaemic new energy vehicle market – thus avoiding confusion with its better selling conventional cars – while Ford has yet to reveal its local contribution to the market.

“Zinoro is a brand of our joint venture here in China,” Karsten Engel, BMW’s country head, said at the Beijing car show. “It’s a brand only for China. It’s based a little bit on the BMW X1.”

BMW chose not to display the Zinoro at the show, instead highlighting its premium i3 electric car. “BMW’s i3 could generate interest in China,” said Bill Russo, founder of industry consultancy Synergistics. “Zinoro doesn’t have the brand panache. Even if it’s an X1 [customers] want to be able to call it what it is.”

The Chinese government’s indigenous brand requirement is particularly challenging for Ford as it runs counter to outgoing chief executive Alan Mulally’s “one Ford” strategy, under which the company jettisoned brands such as Jaguar Land Rover and Volvo Cars to focus on a narrower portfolio.

“We were trying to be world class at so many things,” said Mr Mulally, adding that the strategy was in keeping with the vision of the company’s eponymous founder. “Henry [Ford] wanted to be part of the fabric of economic development in every country in which he operated but he didn’t know that Ford would have a different Ford in every country.”

John Lawler, the head of Ford’s China operations, insisted that the US automaker is in compliance with Chinese government policy mandates, even though it still has not rolled out an indigenous brand.

“We’re satisfying all the requirements from the government but at this point there really isn’t anything for us to announce relative to an indigenous brand or anything along those lines,” said Mr Lawler.

Additional reporting by Wan Li

Click here to read this article at FT.com

Bill Russo joins Harman as Northeast Asia & China Operations VP

China Automotive Review, January 6, 2014

by Ava You

BEIJING – Bill Russo, former president and CEO of Synergistics Ltd. in Hong Kong and vice president of Chrysler Northeast Asia, joined Harman International Industries, the premium global audio and infotainment group, as the company’s vice president of corporate development for Harman’s North East Asia & China operations, responsible for new business development, regional growth initiatives, strategy deployment and related communications, according to a company news release.

Russo reports to David Jin, chairman and president of Harman North East Asia & China. He also reports to Sandra Rowland, vice president of corporate development and investor relations for Harman International. Russo will be based at Harman’s North East Asia headquarters in Shanghai, China.

Russo had served as president and CEO of Synergistics Ltd., an Asia-based business development advisory firm, since March 2009. He served as vice president of Chrysler Group’s North East Asia business, where he directed operations for the regional markets from July 2004 to September 2008. He was director of product & business strategy at DaimlerChrysler from January 2000 to July 2004, senior manager of post-merger integration of DaimlerChrysler from May 1998 to December 1999, and senior manager of process management & continuous improvement at Chrysler Corp. from July 1993 to May 1998. Earlier in his career, he worked in the global services and technology divisions for IBM Corp. from July 1982 to June 1993.

Click here to read this article at China Automotive Review

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

China local brands brace for onslaught from abroad

Reuters, April 27, 2012

China's homegrown car makers unveiled a host of new models amid glitzy lights and blaring music at the Beijing auto show this week - but also under growing uncertainty about their future.

Indigenous auto upstarts such as Chery CHERY.UL, . (0175.HK) and Great Wall (601633.SS) grew spectacularly in 2009 and 2010 but began struggling last year following the government's decision to scrap vehicle purchase incentives that favoured their small cars.

Their share of China's auto market dipped to 27.8 percent at the end of March, a drop of about 3 percentage points from the 30.9 percent peak at the end of 2010 - an all-time high, according to the China Association of Automobile Manufacturers.

A more fundamental cause of their struggle, however, is pressure from low-cost cars from global auto makers. Those cars, such as the Chevy Sail subcompact, have been designed to compete head-on with the no-frills models from China brands, priced around 60,000-70,000 yuan.

"This is not a joke. It is a top priority for us to make sure Geely doesn't fail under pressure" from the foreign rivals, said Zhejiang Geely Holding Group Co Chairman Li Shufu in an interview earlier this month. Geely needs to do everything it can, Li said, to weather the pressure, including gaining some technology from Sweden's Volvo, which Geely acquired in 2010.

Reuters Insider TV at the autoshow: reut.rs/IfSA5O

China's auto market has long been divvied up between homegrown and foreign car makers, which have both been able to thrive by serving different customers. Mostly throughout the last decade, global car makers have targeted the richer elites, while domestic makers including Chery Automobile Co, Geely, and BYD Co (1211.HK) have catered to consumers on a budget.

Those days are coming to an end. Now, in a trend that has been building for a few years, the two groups are headed for a collision in many segments as global auto makers like GM (GM.N) move in on indigenous China brands' territory: people who are just becoming affluent enough to afford their first car.

Pressure from this expansion is making some of those auto upstarts with names like Anhui Jianghuai Automobile Co (600418.SS) (also known as JAC Motors) and Great Wall Motor Co., as well as more well-known and bigger Geely, Chery and BYD vulnerable.

One source of uncertainty is an overall slowdown of China's once red-hot market. The market began softening last year after a decade of breakneck growth. Many analysts and industry executives believe annual growth rates could slow to 7-8 percent on average through 2020, compared with sales surges over the past decade by as much as 46 percent, the rate recorded in 2009.

What's worse, this slowdown is happening as more new entrants appear in the market and as existing competitors add to their offerings, making survival in China, the world's biggest auto market since 2009, even more tenuous.

"When there is enough water in the lake, the boats will float. But when the water level comes down, not all the boats will be able to float," said William Russo, head of Beijing-based consulting company Synergistics.

NO-FRILLS

U.S. consulting firm Alix Partners says the number of households in China with annual income of more than 60,000 yuan - a level considered as sufficient for a family to buy a no-frills car - will likely nearly double to 65.6 million by about 2015.

GM's Chevy Sail, which was launched in 2010, sells for 56,800 yuan, while Volkswagen (VOWG_p.DE) and Nissan (7201.T) also have several models that sell in the 70,000 to 80,000 yuan range.

Further heightening the pressures on Chinese brands is China's own industrial policy.

As part of its effort to nurture domestic auto makers, the country's policymakers have been encouraging global companies and their Chinese joint-venture partners, mostly large state-owned auto makers such as SAIC Motor Corp (SAI.N) (600104.SS), to establish joint China-only brands.

In most cases, those brands that have already been launched - Baojun from GM and its partner SAIC, as well as Venucia, which is operated by Nissan and Dongfeng Motor Group Co (0489.HK) (600006.SS) - use older technology the foreign auto makers retired recently while using more Chinese-designed and -produced components to cut costs.

Use of older technology means those China-only, foreign-Chinese co-brands could sell their cars with relatively low price tags, putting further pressure on China's indigenous brands - a source of worry for many indigenous auto makers.

GM BATTLES KING KONG

The Venucia D50 compact car, based on the previous-generation Nissan Tiida, sells for as little as 67,800 yuan, compared with the 100,000 yuan for the most affordable version of the redesigned Tiida.

The Baojun 630, a compact sedan built on the underpinnings of a retired GM model, is 5,000 yuan cheaper than the Venucia D50.

In the case of the Chevy Sail, GM went back to the drawing board in 2005, simplifying older vehicle underpinnings among other cost-reduction efforts and pulling from the company's global parts bin to shave costs and create a rival to cars such as Geely's King Kong, a 56,000-yuan sedan.

China brands are fighting back by investing in technology to upgrade the quality of their no-frills cars. In some cases, they're also trying to take on their global rivals with more upscale cars, but the effort has mostly been unsuccessful.

Many analysts and industry executives believe big state-owned companies such as SAIC and Dongfeng, with strong ties with foreign auto makers, are likely to fare relatively well, while those without strong backing, such as Jianghuai Auto and BYD, might struggle.

BYD's F3, for example, China's best-selling car in 2009 and 2010, has dropped out of the top-10 list, giving way to new low-cost cars like the Chevy Sail and Volkswagen's Bora, according to the China Association of Automobile Manufacturers.

Geely and others with foreign ties, meanwhile, appear well-positioned to weather the foreign assault. Geely Chairman Li, who is also chairman of Volvo, said the two companies agreed recently to share some Volvo technology with Geely.

Geely desperately needs Volvo technology, Li said, to deal with this "life or death matter".

Click here to read the article at reuters.com

Traffic Jam in China's Auto Market

The Wall Street Journal, April 23, 2012

By TOM ORLIK

With so many car makers accelerating into China, the risk of a pile-up is growing.

The Beijing auto show, which opens its doors on Monday, has become the biggest extravaganza in the biggest car market in the world. Victoria Beckham—the artist formerly known as Posh Spice—is in town to promote the Range Rover Evoque. Maserati is showcasing a SUV.

China's massive population, rising wealth, and growing demand for autos make the excitement easy to understand. From 2008 to 2011, unit sales increased 98%. Analysts speak breathlessly about demand's taking off when gross domestic product hits $10,000 per capita, measured in purchasing-power-parity terms. China is projected to cross that threshold in 2013.

But amid the sound of auto makers revving their engines in unison, there are reasons for caution.

Excess capacity is a risk. Bill Russo, an expert in China's auto sector at Synergistics, estimates that production capacity in China in 2015 could be as high as 28 million units. With sales at 18.5 million in 2011, producers are betting on a lot of demand growth.

On the recent evidence, they might be riding for a fall. Unit sales rose just 2.5% in 2011. The excuse then was that the end of tax incentives to buy cars had dented sales. But the bad news has continued in the first quarter of 2012, with sales down 3.9% from a year earlier.

Competition at the luxury end of the market, where margins are highest, is especially intense. The Maserati SUV, slated for production in 2014, will jostle for position with offerings from Porsche, BMW BMW.XE -4.34% and Mercedes DAI.XE -4.22% . Ford is planning to bring new SUV models to the China market. In the budget-passenger segment, margins are lower, and domestic players are also grasping for market share.

Auto makers can't pass up the opportunity to get into the China fast lane, and there will be some winners. Audi grew its greater China sales 37% in 2011. But the road to higher profits is looking a little jammed.

Key Observations from the 2012 Beijing Motor Show

Beijing, April 23, 2012

By Bill Russo （罗威）

1. Background of Beijing Motor Show

The eleventh China International Automotive Exhibition held in Beijing in 2010 attracted automakers from 16 countries.   More than 2,100 automakers and auto parts enterprises displayed their products and services at the China International Exhibition Centre. In total 990 vehicles were on display, of which there were 89 world debut Cars,  65 concept cars and 95 new energy vehicles. This International Auto Show has set a new record for both the number of show cars and attendance. We anticipate this BJ motor show will surpass the previous one in number of audience and show car models.

In the year 2009-2010, the China automotive market witnessed explosive growth primed by economic subsidies & incentives, coupled with strong underlying economic drivers. Cars were being sold like hot cakes because supply was satisfying the stimulated demand.

However within short span of time the situation has changed dramatically. The expiration of subsidies coupled, with high inflation and increased interest rates have dampened auto demand to 2.45 % in 2011. The challenge is not just limited to slowing demand. The pressure on margins has built further due to increasing cost of marketing (advertising), higher investments necessary to reach consumers in distant lower tier markets, rising fuel and raw material costs.

 The theme of this 2012 show is "Leading through Innovation". Innovation has became a central theme in the strategy for defining a compelling value proposition in a hyper-competitive market.  Carmakers will use to auto show platform to showcase innovative products and technology in order to win the media and audience attention on this stage.

2. Key highlights for the Must See Models and the Emerging Trends Behind Them

2.1  Trend: Increasing importance of Coupe and Crossover vehicles

Driven by increased young generation buyers (Post-80s) and their dynamic styling preference, there are a variety of coupe and crossover concept vehicles to show and launch during this motor show.  The most expected mass brand products are the sporty VW Polo GTI, Passat All track, and coupe, VW CC V6. For luxury brands, Audi TT RS Plus, new MB SL and CLC, BMW 6 series Gran Coupe are noteworthy. Emphasis is not only about upgrading engine output, new segment offerings like SUV or Station Wagon, but also offering various exterior/interior accessories and options to create a distinctive image. Those models will expand their in-market sedan line up and grab more buyers from their traditional competitors.

2.2  Trend: Luxury brands downsize their product line up to smaller vehicles     

In view of growing number of entry-level buyers and their inherently lower budgets, luxury brands are downsizing their segment offerings to  lower their brand’s entry-level price through introducing micro and small vehicles to China. Typical examples are Asia debut of MB A-class, Audi new A3, global debut of Audi A1 5 door. Such new initiatives are expected to lower the luxury brand price point to 200k CNY and below.

2.3  Trend: SUV and Sports-Tourer continue to gain the ground of both show stage and market.

Both international and local brand have recognized the growing consumer interest in SUVs, particularly compact sized and fuel-efficient versions. The vehicles worth watching include the Asia debut of MB GLK refresh models, the new Lexus RX and LX, BMW M6, Infiniti JX35, as well as Buick Encore, Ford Kuga and eCoSport. For China domestic brands, Great Wall is going to launch their topline SUV, H7 equipped with 3.0L Diesel engine, Chang’An and Geely will also announce their new SUV products.

2.4  Trend: Luxury brands customize and diversify their styling design and performance to increase consideration

Individuality is driving the design and development of well-established luxury vehicles.  Such trend is evident in BMW’s Mini brand, which is offering three London Olympics limited versions (Baker street, Bays Water and Cabrio Highgate in different styling and trim.

2.5  Trend: New energy vehicle launch is shifting focus from EV to Hybrid among international carmakers, while local makers are still in concept stage with NEVs

Consumer surveys show the new energy vehicles should not be targeted at the mass-market buyers, but rather, higher income and open-minded premium car owners and intenders. Such a trend drives more international carmakers to introduce their hybrid models to China for both brand marketing and sales reasons. In contrast, local brands have made little progress in commercializing their NEV products; therefore, most of their show cars are still in the concept and prototype stage. Typical examples of international brands are the Asia debut of BMW 5 series hybrid and Infiniti Long wheel base M35 hybrid. Local brands like Dongfeng, BYD and Chery continue to show their plug-in and pure electric vehicle concept cars.

------------

Bill Russo, is a Senior Advisor with Booz and Company. He lives in Beijing and has 25 years of experience in the automotive industry, including serving as Vice President of Chrysler's business in North East Asia from 2004 until 2008.

2012 Beijing Auto Show Guide

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Beijing Auto Show to witness 100 new cars, big shifts in global auto industry

The Economic Times of India, April 22, 2012





Over 1,000 gleaming cars, about 100 launches and roughly 10 lakh visitors: it doesn't get any grander. The biggest auto show of the year, if not in stature at least in size, kick-starts tomorrow. But it's not in Detroit or Frankfurt. It is happening in Beijing. And this shift in address says more about the new power equation in the auto industry than statistics could. 

China isn't just the biggest market for cars, the deal breaker for world number one or two spots. It is fast developing as a manufacturing hub for both the mass and class market. Last year, the extravaganza in Shanghai attracted 7.85 lakh visitors and 12,500 journalists from 48 countries. This year, "the Beijing show will be the largest international show in terms of both the number of cars and visitor attendance", says Bill Russo, founder of Synergistics, a consulting firm in China. 

Along with the new location are coming in new concepts and ideas as automakers move away from tradition to capture new markets and a tech-savvy generation of customers. In a curtain raiser, ET on Sunday analyses all the new trends of the global auto industry emerging from the show so you know what the ride is going to be like. 


Rise of the BRIC 

Once upon a time there was one big show, the Detroit show in January. And most auto firms kept their best unveilings for it. While Detroit pavilions remain the most coveted, other auto shows are fast becoming favourites for car launches. Automakers are investing more in emerging markets and scheduling more global debuts there. 

Why? Because growth has shifted East, especially to China. Last year, the US sold 12.8 million cars. China notched up 18.5 million. Remember, the party always follows the business. The China show has also benefited from the decline in importance of the Tokyo show. Once the host of Asia's biggest show, Japan has become less important even as China is getting bigger. In fact in 2009, at the peak of economic crisis, the Tokyo show was almost shelved after major global automakers pulled out. 


Previously held in October in odd-numbered years, the Tokyo show has now moved to December and the organisers have relegated it to a smaller, though better, venue in Tokyo. "Many automakers have been diverting some or all of their funding from the Tokyo show to either Beijing or Shanghai," says Michelle Krebs, senior analyst at Edmunds.com, an online resource centre on automobiles. 

India's auto shows aren't anywhere in the top league yet. But Tim Dunne, director, global automotive operations, JD Power says the country's stock is rising. The number of automakers in India, current sales and more importantly, the potential for growth makes the country interesting for global automakers. "We are now seeing more investment in auto shows in India and Brazil," says Krebs. 


Chronologically, auto shows have a set pattern. The Frankfurt show, dominated by the Germans, happens in September. The Paris Show, which was actually the first auto show in the world when it began in 1898 but is now past its prime, is held in October. The LA show is scheduled for November followed by the Tokyo show in December. Detroit is the first auto show of the calendar year, and is still the most coveted. It is followed by Chicago in February, Geneva in March and New York around Easter. China show, held in Beijing and Shanghai in alternate years, has booked a slot in April. 

New Pecking Order 

The calendar reveals the pecking order: the Tier I shows come first: Frankfurt, Paris, Geneva, Detroit and China. Tokyo has dropped out of the top league. Shows in Bangkok, India and Brazil are on the rise but have not broken into the top five, at least for the media. 

There is another ranking, this one among auto shows within the US. Detroit is the big winner, followed by New York, LA and Chicago. New York is supposed to attract maximum consumer traffic but experts say the show has gone downhill in recent years. 

Is timing important? If you asked the organisers of Detroit, they'd say yes. (Out-of-town visitors though would claim Detroit in January is a dumb idea.) The show organisers insist on being first in the calendar year, says Krebs. Detroit and Los Angeles used to slug it out, LA wanted to be first and this meant the show was sometimes slotted close to New Year's. That didn't work well so they moved it to November in 2006. New York is content with its slot: it begins the spring selling season (big sales time for US dealers/companies) and is the last major show of the season, making it a front runner for big unveilings. 

Over the years these shows have evolved their own distinct personalities, says Krebs. Frankfurt is the technical giant dominated by German carmakers. Geneva is the neutral zone where no one company dominates and hence sees wide participation. Tokyo has become more low-key and provincial, dominated by Japanese original equipment manufacturers (OEMs). Paris is dominated by the French. Los Angeles is a sort of "green" show. New York's agenda is to draw in a lot of attention from the media headquartered there. 

But now, with many new shows gaining importance amid a flurry of launches across the year, the importance of being early in the list is waning. Also, OEMs increasingly use the shows to send a broader signal. 

Strategy Tools 

Traditionally, automakers considered these shows as nothing more than grand displays. But now, the choice of models and debut cars that make the list are part of company strategies that reveal their priorities. For instance, tomorrow at the Beijing show, Ford will unveil four new cars. 

"We have never done this [so many unveilings in one go] before," says Craig von Essen, product communications director, Ford Motor. This signals Ford's strong ambitions in the region. It expects Asia-Africa to contribute 60-70% of Ford's global growth for the next few years. "China is the biggest car market in the world and this is a step towards firmly establishing Ford here," Essen says. 

In the past, because display was the core of auto shows, pretty young models lounging inside plush interiors or posing alongside the sleek cars were the highlights of the pavilions. They still make newspaper front pages, but the approach is little different. 

Automakers in the shows want customers to engage with the products, understand the technology and the environmental impact. "The attempt is to make the displays more interactive, showcase technology and explain the features of the vehicles and, through all this, establish the brand in a broader sense," says Essen. As a result, the models at the stalls are not just pretty faces. They are trained to talk to customers and answer product queries. 

Concepts and Fads 

The cars that draw maximum gasps and questions from the audience are futuristic, concept cars, the stuff you'd expect to be in Batman's garage. Earlier companies loved flaunting them, designs you would never see on the road. But that's changing now. "Over time, fewer and fewer cars are pure fantasy driven. They have become more realistic," says Rebecca Lindland, auto analyst, IHS Global Insight. 

Now the sexiest thing in new technology is green and small. Hybrids and electric vehicles are vying for attention as car companies showcase models with multiple fuel options. At the Detroit show, for example, Ford flaunted a redesigned Fusion sedan in gasoline, hybrid and plug-in hybrid versions. 

Dodge, known for its big pickups, showcased the compact Dart. Not to be left behind, Audi pulled the covers off a bright Allroad wagon based on A4 and Hummer-famous GM had a smaller Buick Encore ready. The trend was followed in Geneva too where premium automakers showcased small cars, Audi had A3, Mercedes an A-class and Volvo a V40. Given rising fuel prices, environmental concerns and economic volatility smaller, power-packed feature-rich small cars are here to stay. 

It's the Economy 

But what's on display is not the only thing that makes an auto shows a hit. The economy plays a role too. If things are rough there, neither the customer nor the automaker is happy. The mood reflects in auto shows. 

Off late, economic cycles have become sharper. And the financial health of OEMs is lot more volatile. Just in 2009, GM and Ford were struggling to keep afloat. These twists in fortune have a deep impact on the nature of auto shows. 

Look no further than the history of Detroit to understand the economy effect. "In 2009-10, nobody was discussing new products. Everyone was talking about how best to survive the rough times," says Lindland. In two years, the good times rolled in again: there were 40-odd global debuts at the show in January this year. 

The Moscow show has a similar story: in 2006, when the Russian economy was booming, GM chose the show to unveil its Chevrolet. Now, Moscow is almost off the auto show calendar. Just as Tokyo is barely hanging on as Japan's economy flounders. 

The OEMs' financial health does have a bearing too. In 2009, many OEMs including Mitsubishi, Suzuki, Land Rover pulled out of the Detroit show. 

In some cases it is a matter of choice and positioning. Nissan decided to give Detroit a miss for two years and participated in others like LA and New York shows. This year it returned to Detroit. Independent domestic Chinese OEMs like Geely Automotive too have been occasionally showing up at international shows like Detroit since 2006. "It is kind of wave which comes and goes. Turmoil in the company and the country reflects strongly," says Lindland. 

There is only one place that seems immune to such fluctuations: Detroit. The big three of the region, Ford, GM and Chrysler, are past their prime and Detroit is struggling to retain its identity as an auto manufacturing hub. "But as far as the auto shows are concerned, Detroit still is the most coveted. Car manufacturers from across the world participate and so does the international media," says Lindland. 

More Than Cars 

One of the ways to make a big splash, in good and bad times, is to expand the agenda of auto shows. Convergence has long been the buzzword in technology. Cars have jumped on the band wagon. They are about mobility, communication, entertainment and many more things as in-car experience gains currency. For instance, Google is working on a modified Toyota Prius for an experiment on driverless cars. Bill Ford of Ford Motors recently showed up at Mobile World Congress. 

All kinds of alliances are being forged. GM is tying up with LG Electronics for an electric car project. Intel is trying to diversify into the auto sector by supplying Nissan with chips. Microsoft is among other technology companies which will be present at the Beijing show. 

Not surprisingly, companies are also using lot of technology in their stalls to impress visitors. Ford will allow its audience to take control of the all-new Ford EcoSport virtually. 

Using a sensing camera, the crowd will collectively be able to control the compact SUV as it drives along the road and unlocks information at each bend. Photos from this event will be taken during each game and then uploaded to a Facebook gallery. 

Automakers want customers to do more and spread the word. So that people are still at the shows, talking about it after curtains are down on the show.

Click here to read the article at The Economic Times

Presentation: General Motors in China

Analyst Presentation, June 21, 2011

General Motors in China

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Key Themes to Watch at Auto Shanghai 2011

April 4, 2011

By Bill Russo （罗威）

Market Conditions in 2011

The 14th Shanghai International Automobile Industry Exhibition (Auto Shanghai 2011) will be held from April 21 to 28. The overall theme for this year’s show is “Innovation for Tomorrow”, which underscores China’s emphasis on building capabilities for development of advanced vehicle technologies. While we will certainly see a great showcase of new technology from both the domestic and multi-national automakers, I will also be tracking several emerging themes at this year’s show.

Let’s start by reviewing the market conditions coming into 2011. Since the onset of the global financial crisis in 2008, the China government released a series of policy incentives to stimulate vehicle demand, which resulted a strong market rebound to 46% annual growth in 2009 and 32% in 2010. Going forward, China’s extraordinary growth will “downshift” to single digits within the next three years, and we will then likely see a stable growth of 3 to 5% per year reaching total sales in excess of 30 million by 2020. In 2011, continued urbanization and growing demand from lower-tier cities will continue to drive the market up, but the growth will slow down to a 10 - 15% annual growth resulting from the termination of major government subsidies and tax incentives.

Recently, profound changes have been taking place in consumer demand and in the competitive landscape, which is impacting the business focus and performance of carmakers in China. On the demand side, first-time buyers from Tier 3 and lower cities are playing an increasingly vital role in driving future market growth. However, purchase motivation and shopping behavior of lower-tier buyers are distinctive from buyers in Tier 1 and Tier 2 Chinese cities. Another emerging trend has been the shift of product preferences for increasingly savvy Chinese consumers. As income levels rise, demand is shifting towards vehicles and segments offering more appealing styling design and functional features.

On the supply side, automakers are faced with an ever more challenging business environment, featured by “hyper-competition”, a likely “credit crunch”, and rising costs which all result in profit deterioration. Pressure of inflation and overcapacity is pushing carmakers to constantly scrutinize investment and production scale in line with demand changes.

To address these challenges in 2011, carmakers must realign their strategic focus toward the fastest growing segments, while allocating resources to where they can outperform their competitors. They have to make sure their product and service offerings address the buyers in the lower-tier cities, which is especially challenging for international brands who have historically been focused on the first and second tier cities in China’s coastal regions.

To unlock volume potentials, a variety of strategic approaches must be considered and evaluated by international carmakers. Leading automakers are increasingly taking an approach that I call “adaptive brand innovation” to extend their product reach and grow share. They are delivering products with China market-specific adaptations and modifications, while extending the range of segment participation to new price-points and product categories. Leading companies are also introducing new brands and products with their Chinese partners.

For green cars, or “New Energy Vehicles”, 2011 will be the 2^nd year of demonstration projects funded by China government in 25 select cities. We can expect that government subsidies offered to private buyers since June 2010 will have a mixed effect on the development of hybrid, plug-in hybrid, and battery electric vehicles. It will likely take up to five years before we can derive a meaningful volume figure on the consumer side. It will take that long before the impact of production economics, policy incentives and charge infrastructure can be determined.

Five Key Themes for Auto Shanghai 2011

With the termination of policy incentives, we can expect to see a deceleration of China’s double-digit growth rates to a more stable and sustainable pattern. However, the China auto market will still grow at rates significantly higher than the global auto industry average due to continued urbanization and growing demand in lower tier cities.

In Auto Shanghai 2011, we will likely see several key themes emerge:

1. Automakers will set expectations for more moderate demand growth

In the 12^th five-year plan, the China government will attempt to transition from stimulus to market-driven growth. Steps are being taken to tighten credit and government investment in order to tackle inflationary forces, while accelerating urbanization and encouraging consumption. However, urbanization and growth of per-capita GDP will continue to drive the demand for automobiles. Urban wealth accumulation is undoubtedly fueling the growth in automotive sales. The fact that 85% of all vehicles are sold to urban residents is a clear sign of the relationship.

As Auto Shanghai is a major PR stage for global and domestic carmakers, they will likely set expectations for sales in 2011 over the near-term horizon. I expect that automakers will set more stable and moderate market sales growth expectations.

2. Innovations that target new “individualistic” choices for Chinese consumers

As income levels continue to rise, demand will shift towards vehicles and segments offering more appealing content and features, which creates opportunities for manufacturers to improve their product mix. While conventional sedan cars have enjoyed the highest market shares in China, consumers are now seeking more innovative designs. Emerging buyers, particularly the younger generation born in the 1980s and female buyers, are increasingly valuing recreational lifestyles and are seeking more individualistic choices. Safety features and telematics systems that provide a friendly interface between occupants and the car’s electronic systems are becoming mainstream, which will be evident in the cars that will be on display this year.

We will be looking at several new product introductions for evidence of this trend:

· Sub-compact cars: Chery Riich G2 (global debut), Chevrolet Aveo (new generation), Kia Rio (3^rd generation), FAW Besturn B30 (China debut), and a new global concept car from Mitsubishi.

· Compact cars: New Honda Civic, Nissan Tiida (China debut)

· Mid-size cars: VW Passat B7 (Asia debut)

· Luxury/Full Size cars: New Audi A6 (Asia debut), Mercedes-Benz CLS, SLK (Asia debut), Volvo S80L and S60

· New Energy Vehicles: Volvo V60 PHEV, Toyota Prius PHEV, Ford Focus, C-Max EVs, VW Golf Twindrive PHEV, BMW Mini E electric car, BYD F6DM, Chery Riich M1, SAIC Roewe 550 PHEV, FAW Besturn B50 EV, BAIC C30, C70 EVs, etc.

· Concepts Cars: Ford Vertrek SUV, Buick Compact SUV concept, etc.

3. Products tailored to the growing demand in lower-tier cities

In the market expansion of the past several years, carmakers are recognizing the great potential of lower-tier city demand. However, consumers in Tier 3 and lower cities are quite different from those in the more developed Tier 1 and Tier 2 cities. According to AC Nielsen studies, 90% of them are first time car buyers with a car budget of 80,000 RMB ($12,000) on average and they only have 100K ($15,000) disposable income annually per household, however, they have less financial pressure and a more positive life attitude. Compared to Tier 1 city buyers, they have less product knowledge, but a faster purchase process. They value durability, fuel economy and convenience, more than appealing design and high tech features. They are aware of and therefore less discerning among brands, but tend to choose trustworthy and valuable brands known to most of their friends and family.

To gain these lower tier consumers, carmakers have to adapt their product and marketing strategy to address those basic needs. More than providing a cheap car, automakers need to do a better job to smartly deliver lower-priced cars that have acceptable quality and functionality. We should take note of the products that are unveiled that which targeting these emerging lower-tier consumers. Vehicles to watch include BYD F3, Great Wall Voleex C30, Besturn 350, and Chery A3. The local brands of the multi-national companies such as SAIC-GM’s Baojun 630 are also targeting this opportunity.

4. Innovative products and brands for a hyper-competitive automotive market

It is reported that a total of 141 new and refreshed vehicles were launched in China in 2010. This figure will rise up to more than 200 in 2011. However, among hundreds of vehicles in the market, only 20 to 30 models enjoyed monthly sales of 10,000 and above. The China market is now experiencing what many companies doing business globally have called “hyper-competition”. In 2011, we will see even more intense competition among the foreign and domestic brand vehicle manufacturers as they attempt to capture growth opportunities in China. As this is happening, the local manufacturers will strive to upgrade their brands and product portfolios to meet the more upscale image aspirations of Chinese consumers. It is evident from last year that Great Wall and Geely are on the rise, and are hoping to maintain momentum with their upcoming product introductions, while Chery and BYD have struggled to sustain momentum in the marketplace. Models to watch are Geely Emgrand EX8 SUV, GWM Voleex C70 (mid-sized sedan), BYD M6 (7-seat MPV), and BYD S8 (Coupe).

In 2010, there was a high degree of variance in the sales performance among local and international brands due to differences in their China strategies and product commitments. German brands (VW, Audi, BMW, MB) are obviously taking the lead of upper segments over the American and Japanese ones. This gap may widen in 2011 as Toyota, Honda and Nissan and their JVs may suffer from funding and supply challenges from Japan as in the aftermath of the recent earthquake and tsunami.

Great Wall and Geely are surely on the rise with new product introductions, while Chery and BYD have been slowing down due to internal operational issues.

5. Adaptive brand innovation to extend product reach and grow market share

A great majority of international brands have effectively defended their market positions against local brands. While some of this success is a result of an expanded product portfolio, it is also due to some very smart business strategies. One of the most innovative approaches I have observed is what I call “adaptive brand innovation”. This approach involves delivering China market-specific adaptations and modifications, while extending the market positioning to new price-points and product categories, often with the introduction of new brands and products. These approaches are often taken together with local Chinese joint venture partners.

As early as 2005, international brands began this approach with different levels of modification ranging from exterior facelifts, powertrain upgrades, restyling of vehicles, and wheelbase extensions. Typical examples are the extended wheelbase includes Audi A4L and A6L, BMW 5 and MB E-class in the luxury segment, as well as the long wheelbase VW Magotan for chauffer driven buyers. Adaptation of smaller engines to new vehicles is also a way to increase Chinese consumer interest in the product, such as new generation VW 1.4TSI Polo GTI and Golf 6 that dropped the 1.6L and 1.8T engines used by last generation platform.

Many international companies are introducing new brands and products together with their Chinese partners. While initially in response to government regulations on new joint ventures, they are now pursuing this as a means for capturing the volume opportunities in the lower- priced segments. This approach can include co-developing a new product under an international brand, or creating a new mid-market brand within the context of a JV, or supporting the Chinese partner’s local brand development. Several international OEMs are already moving forward in those directions. Example include the Lavida developed by SAIC and VW, the SGM Baojun (off old Excelle platform), Dongfeng Honda DB1 (off the old Civic platform), GZ Honda Everus car (off Honda City platform), and a new brand to be introduced by FAW-VW (possibly off Bora/Jetta platform).

Conclusions

As the engine for growth in the 21^st Century automotive industry, the China auto industry has taken center stage in the battle for global industry dominance. Automakers from all over the world will therefore invest heavily to showcase “Innovation for Tomorrow” at Auto Shanghai 2011. To grow sales potential today, carmakers are realigning their strategic focus to tap into the themes noted in this article.

In summary, I expect automakers will set expectations for more moderate demand growth. We will see innovations that target new “individualistic” choices for Chinese consumers, as well as products tailored to the growing demand in lower-tier cities, while carmaker will launch innovative new products and brands to stand out in a hyper-competitive automotive market. The market leaders will increasingly seek to leverage adaptive brand innovation to extend their product reach in order to grow market share.

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Bill Russo, is the Founder and President of Synergistics Limited. He lives in Beijing and has more than 20 years of experience in the automotive industry, most recently serving as Vice President of Chrysler's business in North East Asia.