GM Chases China Sales With Camaro Transformers

Bloomberg News, June 27, 2014

Visitors take pictures with the Bumblebee Autobot character from the Transformers movies at the Universal Studios Hollywood theme park in Hollywood. GM’s relationship with Transformers goes back to the first film in 2007, which included Bumblebee, a bright yellow Chevrolet Camaro.

As “Transformers: Age of Extinction” opens in theaters, General Motors Co. (GM) is betting on the latest installment of the alien-robot saga to help jump-start Chevrolet sales in China.

The reboot of the movie franchise, which features battling robots that convert into cars and trucks, opens in China and the U.S. today and includes vehicles such as the Chevrolet Camaro sports car and Trax small sport-utility vehicle. The fourth movie in the series gives GM, second to Volkswagen AG in sales among foreign automakers in China, a marketing tool as it introduces six Chevrolets in the country this year.

The goal “is to use it as a springboard for launching new products,” Tim Mahoney, the global chief marketing officer for the Chevrolet brand, said last week in an interview.

The brand could use a boost in China. Chevrolet last year failed to keep pace with the nation’s 16 percent growth for passenger vehicles, with sales rising 8.5 percent to 652,077. Transformers has melded the summer popcorn spectacle with U.S. car culture in a way that has resonated in China, where its middle class has been fueling the world’s largest auto market.

GM’s relationship with Transformers goes back to the first film in 2007, which included a bright yellow Chevrolet Camaro called Bumblebee. Mahoney said he’s seen the effect of the movie on the streets of China, where more than 70 percent of Camaro sports cars are purchased in the same color as the character. In the U.S., it’s just 5 percent.

“The yellow is pretty well associated with Chevy and I think a lot of it, I can’t prove it, but I suspect a lot of it has to do with the role Bumblebee played,” he said.

China Exposure

GM, based in Detroit, plans to use Chevrolet to expand into China’s smaller cities and the country’s western region. The brand’s slower growth last year came “from not having the freshest product in the highest growth segments,” Bill Russo, president of Synergistics Ltd., a Shanghai-based consulting firm, said in an e-mail.

Cristi Vazquez, a GM spokeswoman, declined to say how much GM spent to be part of the movie.

The favorable exposure in the Asian nation could be a boon for GM as the automaker plays defense in the U.S. over its handling of a recall of 2.59 million small cars with ignition issues linked to at least 13 deaths.

Ed Welburn, GM’s head of design, said he’s noticed the Transformer logo on Chevys while riding through Shanghai.

Bumblebee Yellow

“You know it didn’t come through the factory that way,” Welburn said. “People added it to their Chevrolets, and it’s a very positive relationship.”

GM is betting that the latest film, which features a cast led by Mark Wahlberg, will have a similar impact in China. The first three pictures in the franchise have generated $2.67 billion worldwide for Viacom Inc.’s Paramount Pictures, according to Box Office Mojo.

The last installment, “Transformers: Dark of the Moon,” was released in 2011 and had the second-biggest opening weekend for a U.S. film in China, pulling in $56 million, and ending with total sales of $165 million.

The number of theater screens in China tripled from 2008 to 2012, reaching 13,118, according to Beijing-based EntGroup, a research firm. Box-office receipts climbed 36 percent from 2011 to 2012 to reach $2.7 billion and surged to $3.6 billion last year, data from Rentrak show.

Chinese Cast

“Transformers 4 is going to be a very important film for the relationship between Hollywood and China,” said Phil Contrino, chief analyst at BoxOffice.com. “Paramount has cast Chinese actors in the film so there is a lot of outreach to Chinese viewers to make sure that it’s not just selling a film into China.”

Welburn, the design chief, worked closely with the filmmakers and has a cameo role in the movie. A GM plant was also used as a set, according to LeeAnne Stables, president of Paramount consumer products and executive of worldwide marketing partnerships.

The relationship saw GM push to get its new Trax SUV, which went on sale in China this year, in the movie along with the Sonic small car. The Trax is an important introduction for GM in China, where the brand has fallen behind in the small SUV segment.

The automaker and its joint-venture partners reported overall sales gains of 11 percent to 3.16 million in China last year. GM sold 809,918 Buicks in China in 2013 while its Wuling truck brand delivered 1.48 million vehicles domestically.

Guangzhou Auto

GM isn’t the only automaker counting on the Transformers movie.

Guangzhou Automobile Group Co., whose Trumpchi GA5 sedan is driven by actress Li Bingbing in the film, plans to export the Chinese brand to the U.S. as early as next year.

“Our sponsorship of Transformers 4 will help more overseas dealers and consumers know about our cars and over the long run it will greatly contribute to our branding,” Wu Song, head of the Trumpchi brand, said in a phone interview yesterday. “We want to start exporting to the U.S. as quickly as possible and I am confident that they will find our Trumpchi cars competitive.”

China has become the first country to reach more than 20 million new vehicle sales in one year with deliveries rising 14 percent to 21.98 million in 2013. Sales may exceed 24 million in 2014, the state-backed China Association of Automobile Manufacturers has said.

Last year’s sales of passenger vehicles, excluding buses and commercial trucks, climbed to 17.93 million -- or 15 percent more than the U.S. auto industry -- and may increase 9 percent to 11 percent this year, the association said.

As GM works to build Chevy in China, the latest movie arrives with not only cast members from China but also some filming done in Hong Kong as Hollywood also tries to capture a growing market.

Back in Detroit, Welburn, the design chief, said he believes the Camaro’s success in the movie is simple.

“The Camaro is kind of an everyday hero, and it plays that part in the movie.”

To contact the reporters on this story: John Irwin in Southfield, Michigan at jirwin25@bloomberg.net; Anousha Sakoui in London at asakoui@bloomberg.net; Tim Higgins in Detroit at thiggins21@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Chua Kong Ho

http://www.bloomberg.com/news/2014-06-26/gm-chases-china-sales-with-camaros-turning-robot-in-transformers.html

China to probe car market competition

The Financial Times, June 11, 2014

China is conducting a review of potentially anti-competitive behaviour in the world’s largest car market, the commerce ministry said on Tuesday, as new sales data showed that foreign brands were continuing to acquire market share at the expense of their struggling domestic rivals.

Qiu Zhongyi, a ministry official, confirmed that Beijing had asked industry associations in a range of sectors to share information on problems ranging from monopoly practices to local protectionism. “We want to understand the challenges they are facing,” he said, adding that the review covered dozens of industries including cars, pharmaceuticals and alcohol.

The survey document, circulated late last month, said the reviews were being conducted in accordance with the Chinese Communist party’s pledge in November to ensure that market forces would play a “decisive” role in the economy.

May vehicle sales increased 8.5 per cent year on year to 1.9m units, according to the China Association of Automobile Manufacturers, a domestic lobby group. “If the economy is slowing down, there’s no evidence of that in the auto industry,” said Bill Russo at automotive consultancy Synergistics.

But sales of Chinese brand vehicles again trailed the wider market, growing just 5.4 per cent. “Competition between Chinese brands and foreign brands, and among foreign brands themselves, is intensifying,” Yao Jie, CAAM deputy secretary-general, said at the association’s monthly briefing.

Cars produced by foreign-invested joint ventures dominate the market. While the JVs have proven lucrative for both multinational car companies and their state-owned partners, the latter have failed to develop their own brand products.

The three most popular cars in China are Ford’s Focus and Volkswagen’s Santana and Lavida sedans. Sales of these three models alone exceeded 500,000 units in the first five months of this year. For all of 2013, by contrast, China’s most popular domestic brands, BYD and Chang’an, each sold 500,000 units.

“Continued expansion of the middle-class population is raising the number of potential buyers and foreign brands are building out their distribution networks in lower tier cities,” Mr Russo said. “From a market share perspective there’s no good news for the local brands.”

Even Hebei-based Great Wall Motor, which manufactures China’s best-selling SUV, has recently suffered heavy sales declines in part because of quality issues that have delayed the launch of its latest Haval model.

In an attempt to halt the decline of local brands, CAAM has opposed moves to lift the 50 per cent foreign-ownership cap in China’s auto sector and is urging multinational carmakers to transfer more technology and R&D capabilities to their local joint ventures.

Some foreign car companies have also been criticised for the high prices of their vehicles in China relative to other markets, although they insist this is because of strong demand and import tariffs rather than any anti-competitive practices.

Additional reporting by Wan Li

Click here to read this article at FT.com

China’s carmakers have yet to make their marque

The Financial Times, February 3, 2014

By Tom Mitchell in Wuhan

• 
  Crowded lot: thousands of cars sit outside the Dongfeng-Peugeot Citroen plant in Wuhan awaiting shipment. High production from the joint venture contrasts with Dongfeng’s own plants
• Dongfeng’s Aeolus S30: the Chinese carmaker has four successful joint ventures, but it has struggled with its own branded vehicles. These account for less than 10 per cent of annual sales
  

  
  

Aside from a few Communist Youth League banners and a summary of the reforms unveiled at the Chinese Communist party’s third plenum last November, there is little to distinguish Dongfeng’s wholly-owned Aeolus car plant from its nearby joint venture with Peugeot Citroën and Honda.

Situated in a development zone in Wuhan, an industrial city in central China, the Aeolus factory has borrowed equipment and manufacturing systems from both Peugeot and Nissan, state-owned Dongfeng’s third joint venture partner.

Wheels in motion

Passenger car exports

The parking lots outside each plant, however, tell a different story. While thousands of cars are lined up outside Dongfeng’s Peugeot and Honda factories in Wuhan, awaiting shipment to distributors across the world’s largest car market, its Aeolus factory produces only about 300 vehicles a day, or about 100,000 units annually.

Dongfeng, one of China’s “Big Three” car groups alongside Shanghai Auto and First Auto Works, has more joint ventures with international car groups than any of its domestic peers. Including Korean partner Hyundai, it currently operates four joint ventures and signed a fifth partnership agreement in December with Renault. The Wuhan-based company is also poised to take a 14 per cent stake in Peugeot as part of €3bn capital raising.

Dongfeng’s four joint ventures account for more than 90 per cent of the group’s annual passenger car sales, dwarfing those of its own Aeolus brand. It is an imbalance shared by all of China’s state-owned car companies and helps explain why the country that boasts the world’s biggest car market has, unlike Japan and Korea before it, thus far failed to produce a national champion of its own that can compete globally.

“On the plus side, joint ventures spin off a tremendous amount of profit for the state-owned enterprises that they’re affiliated with,” says Bill Russo of Synergistics, an industry consultancy. “On the negative side, those profits are a drug that you become dependent on. Chinese car companies haven’t really been successful at investing them into their own branded vehicles.”

Last month, the China Association of Automobile Manufacturers announced that the country’s car sales grew more than 15 per cent last year to 18m units – almost triple the number sold in 2008. During this period, the market share of Chinese brands peaked at 31 per cent in 2010 and has since fallen to 27 per cent. Meanwhile, China’s 2013 car exports fell almost 10 per cent year on year to just 596,300 units – accounting for only 3.3 per cent of total production.

Imports, meanwhile, nearly tripled to 1.1m vehicles, driven by strong demand for luxury vehicles. While China exports more cars to Algeria than any other country – with its next biggest markets being Russia, Chile and Iran – the largest source of its own automotive imports is Germany.

“The quality of Chinese cars currently can’t compete with multinationals,” says Yao Jie, deputy secretary-general of the association. “We need to work harder to improve domestic brands.” According to CAAM, last year China’s 10 most popular models, led by the Ford Focus, were all manufactured by Sino-foreign joint ventures.

“Most Chinese state car companies know how to bolt a car together,” agrees Max Warburton, car analyst with Bernstein Research. “But replicating a foreign manufacturing system is not a particularly valuable skill set. Real skills lie in product development and in future technology.”

On a tour of Dongfeng’s Aeolus plant, employees are humble but also determined. “I feel that we can catch up but it will take a long time, perhaps 10 years,” says Huang Mingke, a line manager who gave up a job with Dongfeng’s Peugeot joint venture even though the Aeolus plant generally pays lower wages than the joint ventures. “We are investing a lot in critical components, such as engines and transmissions.”

“Although we have borrowed some advanced management techniques from Peugeot and Nissan, it’s only a foundation on which we are building,” adds Tao Haiying, a company official. “We can study and absorb their best practices as we create our own.”

Many analysts believe Dongfeng and its domestic peers will have to sort out their competitive issues at home before they can emerge as a threat overseas. “Maybe China can do something that no one else has, but I haven’t ever seen a car company become a successful exporter without having stable development in their home market first,” says Mr Russo. “You have to achieve a certain size and scale at home before you can compete away.”

The challenge for China’s car companies will be to achieve this in the world’s most competitive automotive industry. When Japanese and Korean carmakers broke out in the 1970s and 1980s, they did so from the shelter of protected home markets.

Dongfeng’s pending deal with Peugeot and Geely’s acquisition of Sweden’s Volvo in 2010 suggest another way forward. What Chinese car companies lack in experience and technical expertise, they can make up for in cash.

Last year Geely established a research centre in Sweden, while Peugeot offers Dongfeng a tempting short-cut in some key areas. “Peugeot has kept spending through the [global financial] crisis,” notes Mr Warburton at Bernstein Research. “So even though its finances are a mess it does have basic platforms, power trains and transmissions that are fully competitive. Dongfeng doesn’t have any of that.”

Additional reporting by Wan Li

Click here to read this article at FT.com

Volvos image ska lyfta Geely i USA

Dagens Industri, August 27, 2013


Article on Geely's decision to leverage Volvo technology to accelerate its entry into the US market.

Med hjälp av Volvo personvagnars goda namn och rykte planerar Geely Automobile nu en omstart på den amerikanska marknaden.  Det meddelar bolagets vd Gui Shengyue.

”Bra för Geely men riskabelt för Volvo”, säger den amerikanske bilexperten Bill Russo till Di.

Med start 2016 planerar VolvoPV:s kinesiska systerbolag, biltillverkaren Geely Automobile, att börja exportera gemensamt utvecklade Geelybilar till USA.

Geelys tidigare försök att slå sig in på den amerikanska marknaden har misslyckats. Men Gui Shengyues mål är att 60 procent av bolagets försäljning ska komma från marknaden utanför Kina 2018.

”Förvärvet av Volvo har förbättrat vår image och utländska konsumenter ser oss nu som ett internationellt företag. I USA kommer vi att satsa på våra gemensamt utvecklade modeller”, sa han under en presskonferens i Hongkong.

Enligt Gui Shengyue är Geelys och Volvo PV:s samarbete fortfarande på ett utvecklingsstadium och de nya modellerna väntas vara klara under 2015.

Skiljer sig från mängden 

Till Di säger Bill Russo, ordförande för bilkonsulten Synergistics i Peking och tidigare chef för Chrysler i Nordostasien, att Geelys planer för den amerikanska marknaden ska ses i ljuset av att det nu blir allt viktigare för kinesiska biltillverkare att nå globala framgångar, och därmed kunna särskilja sig från mängden hemma i Kina i takt med att konkurrensen på hemmaplan hårdnar.

”Geelys strategi är att marknadsföra sig som ett globalt bolag med framgångar utomlands och på så sätt vinna de kinesiska konsumenternas förtroende och öka försäljningen
på den kinesiska marknaden”, säger Bill Russo.

Det kinesiska superdepartementet NDRC räknar med att den planerade kapaciteten bland biltillverkare i Kina uppgår till 40 miljoner bilar 2015, vilket med råge överstiger den beräknade inhemska efterfrågan på omkring 27 miljoner. Samtidigt föll de kinesiska billtillverkarnas marknadsandel i landet till den lägsta nivån på fem år under juli, enligt branschorganisationen China association of automobile manufacturers, CAAM.


Volvos varumärke i fara

”Det innebär att det kommer att finnas betydligt mera kapacitet, särskilt för Kinas lokala biltillverkare, än vad det finns efterfrågan”, konstaterar Bill Russo.  

Samtidigt säger han att Geelys strategi för att nå exportframgångar på mogna marknader som USA kan skada Volvos varumärke:

”Uppriktigt sagt är det lite riskabelt om Geely gör kopplingen med Volvo alltför tydlig. Det kan vara negativt för Volvo.”

I förra veckan meddelade Geely Automobile att det strävar efter att bli Kinas största fordonsexportör i år med runt 180 000 exporterade bilar.

Negativ kännedom Enligt CAAM sålde Geely förra året 100 800 bilar utomlands, att jämföra med den kinesiska konkurrenten Chery Automobile vars export landade på 184 800 bilar. Men Bill Russo är tveksam till Geelys försäljningsframgångar i USA.

”Det kommer att vara mycket utmanande, även om Geelys koppling med Volvo ger Geely en relativ fördel”, säger han.

”Geelys största problem på mogna marknader handlar om bristande varumärkeskännedom, eller negativ varumärkeskännedom. Det blir mycket svårt att få konsumenterna att acceptera kinesiskt tillverkade bilar och teknik.”

JENNY HEDELIN

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

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.

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In China, Older Cars Clog the Air

The Wall Street Journal, January 14, 2013

By COLUM MURPHY

SHANGHAI—A spike in air pollution in Beijing and other Chinese cities has brought concern over auto fumes to the fore in the world's largest car market, but analysts say trucks and older cars—rather than new passenger vehicles—lie at the heart of China's current pollution woes.

China overtook the U.S. as the biggest auto market by number of new vehicles sold in 2009. Last year, Chinese customers bought 19.3 million vehicles, a figure the semiofficial China Association of Auto Manufacturers forecasts will grow a further 7% this year.

A fourth day of severe pollution across large parts of China has put scrutiny on industries that contribute to China's pollution problems, including auto makers, power companies, steel makers and other firms.

Air Pollution Hits Highs in Beijing

ReutersCars on the Third Ring Road in Beijing Saturday

China has fewer cars on the road than the U.S.—92.7 million compared with about 245 million. But according to China's Ministry of Environmental Protection, only 5.7% of China's vehicles meet the country's highest national Grade IV standards that limit toxic emissions from vehicles including greenhouse gas and tiny particulate matter known as PM2.5.

The majority meet relatively low emission standards. The 10% of vehicles that don't meet the minimal Grade I emission standard account for 40% of the total emissions of major pollutants, the ministry said.

"Mitigation of the problem lies much more in getting rid of old vehicles and improving traffic flow," said Janet Lewis, an analyst at Macquarie Securities.

Public outcry about the recent spike in pollution could also motivate the government to re-examine its once-ambitious plans for electric vehicles, implementation of which have recently stalled.

Long term, the current pollution crisis could prompt a rethink of Beijing's policy on electric-vehicle technology, said Bill Russo, founder and president of auto consulting firm Synergistics Ltd. and a former Chrysler executive. "If pollution is becoming a very visible problem, then it could change attitudes about alternatives" such as clean diesel and conventional hybrid engines, he said.

Last year, the State Council, China's cabinet, said it hopes output of pure electric and plug-in hybrid vehicles reaches 500,000 by 2015 and 5 million by 2020.
However, progress has been slow on more immediate steps. For example, China has twice delayed the nationwide rollout of tighter vehicle-emissions standards amid opposition from the refining industry. Tighter emission standards have also met with resistance from truck-engine manufacturers as well as buyers of trucks. A.T. Kearney consultant Stephen Dyer estimates the additional cost for engine makers to comply with stricter rules at around 10,000 yuan (about $1,600) per engine. "While this may only represent 5% of the total cost, engine makers say it's enough to significantly impact sales," he said.

The Environment Ministry said in January 2012 that the National IV standards would be applied to diesel-engine vehicles from July 2013.

China has other options, such as promoting the scrapping of old vehicles.

Last year, the city of Beijing offered financial incentives to car owners to get rid of older cars. But the amounts involved were modest—up to around 16,000 yuan for larger cars.

Lin Huaibin, manager for China vehicle-sales forecasts at research firm IHS considers such incentives "a start" toward increasing the scrappage ratio in China, which currently stands at around 3% of total registered vehicles, considerably less than the U.S. rate of around 8%. Mr. Lin said it's "pretty likely" that other Chinese cities will follow in the steps of Beijing.

The latest pollution episode also could see more Chinese cities introduce restrictions on auto purchases.

Last year, the southern city of Guangzhou and the southwestern city of Guiyang joined Beijing and Shanghai by putting car-ownership restrictions in place that seek to relieve traffic conditions and limit air pollution.

It is unclear whether such moves could specifically result in a fall in auto sales. Macquarie's Ms. Lewis said she didn't expect any further restrictions on the purchase of new vehicles as a consequence of the recent pollution problems.

Beijing had about five million vehicles on the road at the end of 2011 or 260 vehicles per 1,000 people. As of the end of 2011, Guangzhou had 2.33 million vehicles on the road, meaning 180 vehicles per 1,000 people, according to a government-affiliated transportation think tank in the southern Chinese city.

There are more than 800 licensed vehicles for every kilometer of road in Beijing, data from the Beijing government show, compared with 306 vehicles in Hong Kong and 520 vehicles in Shanghai.

Globally, about one third of polluting emissions can be attributed to transportation-related sources, said Mr. Dyer of A.T. Kearney. Of this, about one-third is linked to passenger cars, one-third to commercial vehicles and the rest to other forms of transportation including airplanes and ships.

However, in the case of Beijing about 50% of harmful emissions are caused by transportation sources, he said.

—Rose Yu contributed to this article.

A version of this article appeared January 15, 2013, on page A12 in the U.S. edition of The Wall Street Journal, with the headline: Older Cars Clog Air in No. 1 Market.

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