Showing posts with label Peugeot. Show all posts
Showing posts with label Peugeot. Show all posts

5.04.2014

China’s carmakers have yet to make their marque

The Financial Times, February 3, 2014


By Tom Mitchell in Wuhan
  • Thousands of cars sit outside the Dongfeng-Peugeot Citroen plant in Wuhan awaiting shipment
    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

12.11.2013

Peugeot agrees main terms of tie-up with China’s Dongfeng

The Financial Times, December 11, 2013

  • 1810: The Peugeot family business begins to put down its engineering roots as brothers Jean-Pierre Peugeot II and Jean-Frédéric turn their father’s grain mill into a steel foundry, making everything from coffee grinders to umbrella frames
  • 1882: The company turns to transport, making bicycles. The first was Armand Peugeot’s ‘Le Grand Bi’, or penny farthing bike
  • 1893: The Peugeot Type 5, which was powered by a two-horsepower engine, was produced from 1893 to 1896
  • 1913: The Peugeot 153, whose 2.6-litre, four-cylinder engine produced 12 horsepower, was made in various forms until 1925
  • 1929: Peugeot unveils its first mass-produced car, the 201, but sales were are hit by the Depression
  • 1934: The top-of-the-range Peugeot 601 rolled off production lines in 1934
  • 1940: After the Peugeot 402, produced from 1935 to 1942, the company is forced to build cars and weapons for the German war effort
  • 1962: The stylish Peugeot 404 cabriolet became a 1960s icon
  • 2010: Peugeot starts production of the fully electric iOn city car
  • Today: Robert Peugeot is chairman of FFP, an investment company through which the Peugeot family controls a 25 per cent stake in the car company ©Reuters

PSA Peugeot Citroën and China’s state-owned carmaker Dongfeng Motor have agreed the main terms of an industrial and commercial partnership that will include a large capital injection into the French group in return for technology sharing.

The two carmakers are still hammering out the details but the agreement is expected to involve a €3bn-€4bn capital raising by Peugeot and an agreement for the two groups jointly to develop and produce low-cost small cars for southeast Asian markets.

Peugeot hopes to be able to have the deal announced in the first quarter of next year, according to two people briefed on the discussions.

The French group is desperate to lower its over-dependence on the moribund European car market and is rapidly burning through its capital reserves. Both Peugeot and Dongfeng declined to comment.

Peugeot closed down the first large car factory in France for 30 years this year and reduced its workforce as it seeks to reduce the €3bn cash burn it suffered in the full year 2012. It recently hired a former Renault executive to lead a more globalised push.

The company already has a successful joint venture with Dongfeng building cars in China, but trails rivals such as Fiat and Volkswagen in markets such as South America, and Renault-Nissan in tapping growth in southeast Asian markets.

Carmakers have increasingly turned to alliances and joint ventures to increase their scale and cost efficiencies, but a deal between Peugeot and General Motors to share some products and suppliers has failed to live up to the French carmaker’s hopes.

There are expected to be 5.5m cars and light vehicles sold in southeast Asia this year, roughly half the size of western Europe. But the region’s market is expected to grow by more than half by the end of the decade, versus flat or marginal growth in Europe.

Negotiations are continuing between Dongfeng and Peugeot about exactly how much the Chinese group will pay for what percentage of Peugeot.

The people briefed on the discussions, who declined to be named as the talks were private, added that it could still all fall apart, although this was looking less and less likely.

The French state is contemplating matching any investment made by the Chinese group to maintain French influence over the company.

The most likely investment by Dongfeng and the French state would give the Chinese carmaker and Paris 17.6 per cent each, according to research by Macquarie, with the Peugeot family holding 16.5 per cent and GM 4.5 per cent.

An injection of that size would result in the Peugeot family losing control of the business it founded in 1882.

Based in Wuhan, in central China, Dongfeng is one of China’s largest car manufacturers with annual revenues of $63bn. It already operates a manufacturing joint venture with Peugeot alongside three others – Honda, Kia and Nissan – and last week signed a fifth joint venture agreement with Peugeot’s French rival Renault.

If completed and approved by Beijing, Dongfeng’s tie-up with Peugeot could catapult it on to the global stage – something that no Chinese state-owned carmaker has yet been able to achieve. Hangzhou-based Geely, which purchased Volvo Cars from Ford in 2010, is privately owned.

“Whatever they pay for the shareholding, they’re probably going to get justification in knowhow,” said Bill Russo, a Beijing-based automotive consultant. “Peugeot’s global distribution capacity would also be an advantage for Dongfeng.”

Peugeot accounts for 60 per cent of France’s car production and employs close to 100,000 people locally.

Additional reporting by Tom Mitchell in Beijing

7.12.2013

PSA有意向东风出售30%股份 分析称谈判艰难

China Business News, July 11, 2013

PSA出售股权将是一场艰难漫长的谈判,但欧洲主流汽车公司与中国第二大汽车集团产生关联,必然会给全球汽车业带来震动。

  文|CBN记者 宁华 张晶

  资料整理|张鑫 张嵩浩 华薇薇

  PSA有意向东风汽车集团出售30%股份的消息,令汽车业的其他新闻失去了吸引力,也让在逐渐放缓的中国市场为销量绞尽脑汁的汽车业人士可以暂时从枯燥的数字中抽身。

  这则消息最早是路透社于6月27日披露出来的,并在几天后开始被中国媒体引用。消息如此突然,以至于PSA在华合资公司的职员也得向亚太区总部打探消息,最后他们得到了跟新闻界一样的答案:还没有任何正式消息。

  PSA在欧洲是第二大汽车公司,仅次于大众,而东风则是中国第二大国有汽车集团,按照整体销售额计算,东风去年能排到福布斯汽车业排行榜的第11位。正因如此,即便双方的接触仅仅是个开始,距离最终完成交易还相去甚远,也具有足够的爆炸性。

  前克莱斯勒东北亚区副总裁、现任博斯咨询公司高级专家Bill Russo在接受《第一财经周刊》采访时说“完成交易将非常复杂而且旷日持久。除了交易价格的谈判之外,双方必须寻求各自董事会通过,交易同时需要得到中法两国政府的认可—所有这一切都非常耗时。”

  法国《世界报》长期跟踪报道PSA的记者Philippe Jacqué告诉《第一财经周刊》,这毫无疑问会令欧洲汽车业为之震动。“如果东风获得PSA的控制权,将意味着标志家族一段200年的故事结束,但东风只是如果少量持股,那不过是PSA故事的一个新插曲。”他说。

  7月2日,PSA监事会主席Thierry Peugeot出现在合资公司第三工厂的剪彩仪式上,给传闻增添了一丝真实性。一位东风内部人士透露,之前PSA因资金压力考虑停止类似于空气混合动力这样的先进技术开发时,东风还曾表示愿意投入资金接手,让开发工作能够继续。这足以说明东风对PSA充满兴趣。

  另一位接近东风汽车高层的前员工告诉《第一财经周刊》,早在2011年PSA就曾主动找过东风,询问后者是否有兴趣入股。东风的条件是不满足于仅仅成为投资者,希望在技术上有更多的合作,而PSA不愿失去对公司的控制。

  这些原则在PSA与东风的此次谈判中同样适用,但PSA的情况在过去两年持续恶化令情况发生转变。简单来说,PSA更缺钱了。

  从事并购法律咨询工作的法国德垣律师事务所创建人石仁林对《第一财经周刊》表示,从法律上讲,控股权和投票权原则上是可以分离的。因为投票权的不同,一些股东的权力被放大,一些股东的权力受到限制。如果投票权一直掌握在标致家族手中,东风汽车入股的意义不大,因为不能实际行使权力。仅仅持有股权而无投票权,意味着成为金融股东,只参与利润分配。但以PSA目前的状况,并没有利润可供分配。“因此,我想这笔交易不会以这种方式进行。”

  过去一年,PSA花光了30亿欧元的运营现金流,市值从2002年的超过200亿欧元锐减至不足25亿欧元。现在它正以每月2亿欧元的速度在烧钱。预计2014年还将消耗15亿欧元。按照这样的现金消耗速度计算,PSA持有的73亿欧元最多还可以维持企业运营两年。眼下或许PSA不需要现金,但从长期而言,为保证技术研发以及2016至2017年正常发布,PSA肯定需要大量新资金的注入。

  Bill Russo说:“考虑到目前的财务状况,PSA最需要的就是寻求新的资本来源。为了支持接下来的商业计划,它必须尽快在今年就注入资本。”

  欧洲市场的萎缩令所有主流汽车公司都受到影响,但由于PSA的业务核心主要集中在欧洲,占到总销量六成以上,因此它受到的打击最为致命。

  去年PSA总共销售了约300万辆汽车,净亏损50亿欧元,其中中国和拉美两个主要海外市场分别销售了44万辆和11万辆,这样的海外销售比例显然无法给PSA带来足够的灵活性。

  Philippe Jacque评论说:“随着欧债危机的发生,PSA在法国、西班牙、意大利的销量大幅萎缩,失去和其他汽车制造商较量的根基。PSA不同于有其他强劲市场的大众,也比不上拥有美国克莱斯勒的菲亚特,或者是有日产可以依赖的雷诺,它孤立无援,只能依赖自身。”

  PSA的问题从2000年那一轮扩张开始就已经埋下了伏笔。

  菲利普·瓦兰的前任CEO当时制定了400万辆的销售目标,并随之将生产规模扩大至能够实现这一目标。问题在于,从纺织业起家的保守的标志家族将公司定位于一流的欧洲汽车公司,而非全球性汽车公司。1976年收购雪铁龙组建起PSA集团后,标志家族还花费了大量资金收购股票来保证控制权。公司甚至曾与一些竞争对手,比如丰田和菲亚特达成一次性交易,出售整条产品线来保持公司独立性不受损。

  2008年金融危机发生的时候,法国的PSA和雷诺均受到重创。法国政府向这两家公司施以援手,向他们贷款数十亿欧元,推出“以旧换新”计划来帮助它们在法国维持销量。与此同时,PSA和雷诺都在压缩成本并推迟了对新车的投资。这些措施一开始看起来成效不错,雷诺和标致一度复苏,到了2010年两家公司都开始盈利,它们甚至提前偿还了政府贷款。但是从那之后,雷诺继续稳健的策略,而PSA重新开始投资新项目,最典型的例子是在中国的产能扩张。

  PSA在这一轮欧洲危机中受创比雷诺更严重的另一个原因是,雷诺有低端入门型产品可以维持销量,而PSA主要销售尺寸更大的主流车型。

  产能过剩和成本过高是PSA急需解决的两大问题,PSA法国工厂的开工率现在只有71%。为了降低成本,PSA要在2015年前裁员1.1万人,关闭一间位于巴黎北部的工厂,并与通用汽车合作降低研发和采购成本。此外,它还需要在中国、拉美和俄罗斯这些新兴市场扩张,以及在欧洲进入高端市场来获取更多的销售利润。

  但是这些措施要么因为法国政府的援助和工会的介入无法顺利实施,要么需要新的投资。

  Philippe Jacque透露说,这些天来巴黎每个去PSA总部的银行家都会提出他们的解决方案以及对未来种种可能的见解。看上去东风与通用汽车都已经与PSA进行过接触,不排除PSA还在与其它汽车公司接触的可能。

  “有一个法国咨询公司受雇于法国政府,提出了一个针对PSA的解决方案。这是一份机密文件,我没看过,但我知道方案的结论,即通用汽车是更好的选择。”Philippe Jacque说。

  目前看来,通用和东风是最有可能的买家。前者已经与PSA进行合作,东风则是PSA在最重要的海外市场的合资伙伴。虽然通用汽车已经明确表示不再购入PSA股份,但也不排除这是一种谈判技巧,以尽量低的代价获得更多利益。

  标志家族恐怕已经意识到,失去对PSA的控制权只是时间问题,他们目前持有25.4%的股份和38.1%的投票权,因此选择一个适合的买家至关重要。

  Bill Russo认为,选择东风的好处在于,可以由此拓展技术研发、品牌管理和销售渠道。显而易见,PSA未来的成功依赖于中国市场的持续扩张。东风对于PSA业务的直接投入,将能够确保双方共同在这个重要市场进行业务扩张。PSA亚洲区负责人Gregoire Olivier曾预测中国可能在2015年超过法国成为PSA销量最大的市场。

  中国已经成为PSA在全球的第二大市场。今年上半年,神龙汽车的销量为27.7万辆,同比增长了33%。这明显高于中国乘用车市场的增长率,后者的增长率为14%。PSA在中国的强劲增长,有利于帮助其分担欧洲市场的风险和压力。而东风汽车也能通过合作提升技术研发能力,品牌管理能力和销售能力。

  而通用的优势在于双方在产品研发,采购和生产运营中的协同效应。通用已经投入4.23亿美元购入PSA集团7%的股权,并共同组建了采购和研发的协作平台。一旦能够完成股权收购,通用在欧洲的子公司欧宝还可以与PSA共同使用一些工厂,化解产能过剩。

  欧洲媒体普遍看好通用。但是巴克莱银行的分析师认为通用汽车和PSA进一步合作的可能性不大。他称,开始的那笔投入看上去是个错误,进一步注资“是在填无底洞”。通用汽车今年2月公布的财务数据显示,结盟一年来,PSA股票价格下跌了50%,通用汽车所持的7%股权价值损失了2.12亿美元。

  如果继续注资对通用汽车而言是“无底洞”,随之而来的一个疑问是东风作为一家从未有过全球化运作和先进技术开发经验的公司如何能化险为夷?

  吉利收购沃尔沃或许是个正面案例,但这两者的情况略有不同。沃尔沃是被吉利完全收购的。而东风可能只是购入PSA的一些股份,其他股东依然保留。

  “一旦交易完成,对于东风和PSA都意味着更为复杂的配置。因为双方都有目标不一的政府投资者。吉利是个独立的汽车制造商,决策相对东风这种国企来说更为直接,我相信对于东风和PSA来说,任何业务的合作都会充满挑战。东风需要能确保PSA重组全球业务来实现盈利,与此同时增加自己在中国的投资。”Bill Russo说。

  由于东风在中国同时还与日产、雷诺、起亚等全球性汽车公司建有合资企业,这些都是PSA的直接竞争对手,因此拥有一家公司,同时还能了解到大量竞争对手的机密信息看起来也是一件非常奇怪的事情。

  由于法国政府的介入以及东风的背景背景,这桩交易的复杂程度还超出了公司管理和技术层面。整个股权转让过程必然要经过法国政府的许可。

  PSA在新技术专利方面是法国第一,法国政府无疑想留住这笔珍贵的资产,打算进一步提供资助。因此政府阻挠了PSA关闭工厂、裁员等举措。政府还派前空中客车母公司EADS的首席执行官Louis Gallois为PSA顾问小组的独立管理者,进入公司董事会,以此作为资助PSA的一个条件。

  至于风险,法国政府会担心PSA的核心技术转让问题,以及工作岗位的外流。鉴于通用与PSA的关系,前者可能也会担心类似的问题。

  石仁林说:“目前我们看到的只是谣言,对时间的估算必须从签订第一个意向书开始,如果能一直往前走,通常情况下,交易完成快则半年,慢则一年。”

  这其中涉及到实地对资产考察、技术和财务上的审查,即便双方签订了股权转让协议,还需要获得工会和政府的同意,调集资金,替换掉原有的一些资金担保,完成人事安排和股权交割。

  Bill Russo说:“和东风的这笔交易得到许可的漫长过程可能无法满足PSA日常运营的紧迫性。PSA必须寻求多个资金来源,不可能完全倚赖与东风达成交易。”

  石仁林还表示,作为外国股东,最大的阻力可能来自于工会。西方国家的独立工会号召力强,而且谈判经验丰富。对于中国这种正在发展的国家,收购之后的重心转移可能会带来严重后果。

  单从商业层面考虑,让其他国家的公司成为PSA新股东并非坏事,近年来的成功案例往往来自于亚洲公司对传统欧美公司的收购。塔塔与捷豹、路虎的合作非常顺利,上汽集团通过购买荣威和名爵获得了技术并成功地扩大了销量,吉利收购沃尔沃还有待观察,但双方在新车型开发和中国工厂上也取得了显着进展。

  无论PSA与东风的交易最终能否实现,都再一次表明,市场转移给庞大的汽车业带来的影响。大众抓住中国市场挑战丰田和通用,除销量外用任何指标衡量它都已经是实际上的全球第一。通用则借助中国市场从破产重组中成功复兴。对于中国汽车公司来说,这样的机会在接下来的10或20年里肯定会反复出现。

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5.13.2013

An Odd Corporate Vehicle for Doing Business in China

The Financial Times, May 13, 2013

by Andrew Hill

Guests look at a Buick Riviera Concept 2013 model during the unveiling event ahead of the Shanghai International Automobile Industry Exhibition (AUTO Shanghai) in Shanghai,
Buick Riviera The big attraction on GM’s stand at last month’s auto show in Shanghai, the concept car is the product of a joint venture between Shanghai GM and a separate JV, the Pan Asia Technical Automative Center

In 2010, seven managers from PSA Peugeot Citroën and five from Chang’an Automobile met in Shenzhen, southern China, to lay the groundwork for a new car factory. Three years later, Capsa, a 50-50 joint venture between the French and Chinese companies, is in the final stages of preparing a 1m square metre plant for the September launch of Chinese-made premium cars under the DS brand. “Because we were beginning from a blank sheet, people wanted to make it as perfect as possible,” says Gilles Boussac, Capsa’s president, between meetings with his team of mostly Chinese managers. “So often in China, if you’re trying to rework or improve something, it takes years to achieve.”

But the people who built Capsa have not started from scratch. Their shared enterprise is based on three decades of global car companies’ experience working with Chinese partners.
International car executives are confident such ventures will continue to be the best way to reach Chinese customers, who now buy more than 20m new vehicles annually, making it the world’s largest automobile market. But their enthusiasm for these awkward corporate vehicles, with their unique management challenges, obscures the fact that the path of co-operation has been bumpy.

A shared purpose

From the outset in the 1980s, automotive joint ventures in China were built on hopes of mutual benefit, tinged with mutual suspicion. George Xue of Fudan University’s school of management in Shanghai says they are “central [to] the Chinese economy”. The nation had three main aims in encouraging them: “Developing industry, upgrading technical expertise and enhancing our management level.” International carmakers, meanwhile, were prepared to share their manufacturing technology and knowhow with Chinese state-owned partners in the hope of gaining access, initially via local government contracts, to the wider market.

The joint ventures are odd creations. The largest state-owned carmakers frequently cultivate relationships with non-Chinese rivals. SAIC Motor in Shanghai, for instance, operates 104 joint ventures, including two of the biggest – one with Volkswagen and another with General Motors – as well as its own independent carmaking operations. But these enterprises now have deep roots. Ahead of the auto show in Shanghai last month, Volkswagen celebrated with SAIC the 30th anniversary of the first Chinese-built VW Santana.

From China’s point of view, local production was revolutionised by association with the global companies. The Chinese partners grew large on the back of joint-venture production. At a roundtable at the Boao Forum for Asia last month, Hu Maoyuan, SAIC’s chairman, attributed its “development into a Fortune Global 500 company from a local small company” to the opening of the economy and opportunity to co-operate with global carmakers. The Chinese also appear to value management experience acquired via joint ventures: Mr Hu and his vice-chairman are former presidents of Shanghai GM.

Meanwhile, mutual suspicion has waned. According to G.E. Anderson’s book Designated Drivers, Peugeot’s first, failed venture, with Guangzhou Automotive Manufacturing in the 1980s, was marked by “resentment that, although the Chinese workers were being taught to speak French, there appeared to be no desire on the part of the French expatriates to learn Chinese”. The Chinese also bridled at strict French production methods, while the French did not export the Chinese-made Peugeots, as planned, lest the poor quality hurt their brand. By contrast, Capsa’s managers use English and Chinese – based in part on the fact it is easier to find Chinese-English interpreters.

Volkswagen Santana taxis built by Shanghai Automotive Co. Ltd. are pictured on a road in Shanghai, China, on Tuesday, Aug. 16, 2005. Shanghai Automotive Co., China's largest carmaker, plans to sell as much as 8 billion yuan ($1.06 billion) worth of bonds that can be converted into shares to finance acquisitions and car production.
Popular model: Volkswagen Santana taxis first built by the German carmaker and SAIC 30 years ago

Capsa’s Shenzhen plant is hard to distinguish from European or US car factories, though managers boast it is more compact, and therefore likely to be easier to run. It draws on lean manufacturing techniques, such as the use of modular plastic racks and trolleys along the production line. In a negotiation typical of Chinese joint ventures, the French team had to convince its Chinese counterparts such racks would be a better investment than cheaper, but rigid, metal alternatives. To pre-empt potential clashes, Capsa workers were asked to bring their tools to the first training sessions to help integrate their working methods into the planning of the plant.

Ying Zhanwang, executive vice-president, says the joint venture has developed a “one goal, one team, one process” system of production-line excellence based on best practice at Chang’an and Peugeot. It also capitalises on Chang’an managers’ and engineers’ experience working with Mazda and Ford in other joint ventures.

Shanghai GM is the longest-running example of this co-operative approach. In American Wheels, Chinese Roads, Michael Dunne writes about the critical moment, in 1998, when Phil Murtaugh, then general manager of GM’s Shanghai operations, and Mr Hu, at the time his Saic counterpart, laid out a four-point plan for a “kind of co-operation never before witnessed in China’s automotive industry”. It included the requirement that Shanghai GM staff should put the joint venture first, in contrast to the more rigid delineation between German and Chinese managers at rival Shanghai VW.

Kevin Wale, former president of GM China, says all joint ventures are moving towards Shanghai GM’s co-operative style. VW and SAIC set great store, for instance, on forging a closer common culture through initiatives such as Shanghai Volkswagen University, set up last year to train staff in areas such as product development and sales and marketing.

Mr Wale and other analysts also say there is no reason why Shanghai GM’s approach should be more successful than Shanghai VW’s and point out that relations within the GM-SAIC venture are not always harmonious.

Bob Socia, Mr Wale’s successor, says the expatriate roles at Chinese joint ventures are “not easy jobs, because you have lots of bosses”. Trying to look at problems from your partner’s perspective can be draining, Mr Wale adds: “It isn’t a natural phenomenon to always be looking behind the curtain.” As an example, both point to Saic’s insistence on – and GM’s initial resistance to – development of the Chevrolet Sail at a production cost and price level far lower than the Americans were used to.

Maturing partnerships

Since the 1980s, automotive companies have learnt how to tailor old models, and, increasingly, to design new cars to Chinese tastes. Asked what the Chinese have taught them, most expatriate managers refer to their counterparts’ determination to reduce process complexity and costs.

But have the international carmakers applied these lessons or other Chinese-led innovations to their operations in other markets? “Less than they could or should have done,” says Bill Russo, a former Chrysler executive whose Synergistics consultancy now advises companies on building cross-border partnerships.

Hu Maoyuan, chairman of Shanghai Automotive Industry Corp. (SAIC), pauses at a news conference in Shanghai, China, on Monday, Sept. 20, 2010. SAIC Motor Corp. said it may invest in the initial public offering of partner General Motors Co., cementing ties between the biggest U.S. and Chinese automakers.
Hu Maoyuan of Saic predicts that it will take years before Chinese-branded cars overtake joint venture models

All joint ventures are “like children growing up”, says Mr Wale. The parents have “to let them stretch where they are capable and slow them down where they need guidance and support”. The children, and their parents, are likely to face further challenges in the coming decade. John Huang, managing partner at Shanghai law firm MWE China, points out: “If competitors form joint ventures – what I call ‘sharing the same bed, with different dreams’ – sooner or later they will have problems.”

In three areas – development of Chinese-branded cars, the export of Chinese-made vehicles and the sharing of intellectual property – Chinese companies, and their political paymasters, have not achieved what they hoped for in the 1980s.

The arrangements were supposed to prompt the development of competitive homegrown models. At the Shanghai show, scores of Chinese brands were on display but non-Chinese marques have the upper hand in the market. This is partly because the Chinese are happy to reap the monetary and industrial rewards from the joint ventures, but also because the Chinese consumer has developed a taste for the international brands.

SAIC’s Mr Hu underlined at the Boao conference that the company was “working on independent research and development . . . and our independent brands are seeing long-term development, not only in terms of the technology level”. He admitted, however, it would require “the efforts of generations” for sales of Chinese-branded petrol and diesel vehicles to surpass those of joint-venture brands.

Not for export

The original joint-venture contracts also made clear that the new enterprises would eventually export their vehicles from China. But one analyst says international companies have deliberately “slow-walked” exports because they could pose a direct competitive threat to their wholly owned subsidiaries in third countries.

At the same time, with a few exceptions – including the Sail, whose intellectual property belongs to GM’s local joint ventures – international companies have been reluctant to share designs with Chinese partners. Most “new” co-owned joint-venture brands are pale versions of older models.

Chinese and foreign partners have a strong shared interest in prolonging their moneymaking ventures. But if China slows, or local brands fail, the demands on joint ventures will intensify, further complicating the management of the world’s largest, but strangest, co-operative enterprises.

In Shenzhen, Mr Boussac’s demanding production programme is on schedule: “At the last board [meeting] everyone was pleased to see that all the planets were aligned: Capsa, [Peugeot], Chang’an.”

The question for most of the automotive joint ventures in China is what will happen if and when the planets no longer line up.
-------------------------------------------

Is your joint venture really necessary?

Shanghai GKN Driveshaft, a car parts venture between GKN of the UK and SAIC, dates from 1988, making it one of the oldest in the sector. Xue Jinda, its managing director, says it combines the “successful characteristics of both Chinese and western parties” – so successful that in 2009 the partners extended it for another 50 years and have just expanded its scope.

But in other industries, where joint ventures are not mandatory, they are usually shorter-lived and, in many cases, may not even be necessary.

Richard Grams, who runs the Shanghai office of Benesch, the US law firm, says very few partnerships work after year three. Often, in that time, “the company has spent as much or more time managing the relationship with the JV partners than they have pursuing the business”.

Unlike the carmakers, which operate via larger, more rigid equity joint ventures, a growing number of international companies in China are now using flexible “contractual” or “co-operative” agreements, under which more than two partners can have different shareholdings, pay-off schedules and objectives. Non-Chinese companies may also prefer to link up selectively with specific local companies for one product or activity – for instance, distribution – rather than for the entire business.

Where there are likely to be large upfront costs, or difficult negotiations with government officials, it makes sense to use a Chinese partner. But John Huang of Chinese law firm MWE China says that since 2000, more foreign groups have set up “woofies”, wholly foreign-owned enterprises, than joint ventures. As Andy Reynolds Smith, GKN’s chief executive of automotive, points out, businesses with many customers lower down the supply chain may find it easier to serve China through a wholly owned subsidiary, as GKN does in the powder metallurgy division he also oversees.


8.28.2012

Ford Pushes Into China's Interior

The Wall Street Journal, August 26, 2012

Click here to read the article at wsj.com


Ford Motor Co., a latecomer to China's booming auto industry, is counting on businessmen like Feng Shouming to help the company catch up to more established rivals General Motors Co. and Volkswagen AG.
Later this month Mr. Feng will open his seventh Ford dealership in Wuhan, a city of 10 million people in China's interior, a vast region that still offers great potential for smaller players like Ford.
Much of the wealth that China's rapid industrialization has created is located along the country's eastern coast, and car buying has skyrocketed around prosperous cities like Shanghai and Hangzhou. But now the Chinese government, in an effort called "go West," is employing economic policies designed to push investment toward the center and west of the country, and bring more prosperity to regions still dominated by farming culture.
Ford is betting that push will continue the boom in car buying in places like Wuhan, even as growth in auto sales moderate along the coast.
"The automobile industry here is very young and although it is the biggest in the world, it's only been a thriving industry for a decade," said David Schoch, chief executive officer of Ford China.
While not giving up on wealthier coastal provinces, Ford is concentrating its efforts on the dozens of cities in central China with populations of 500,000 to five million people, Mr. Schoch said. "We see a tremendous growth opportunity in the middle and the west."
To make the strategy work, however, Ford needs people like Mr. Feng who are willing to team up with a company that isn't yet up to full strength in China.
In an interview, Mr. Feng said business has been tough, in part because Ford only offers six models in China—the Focus compact and two other small cars; a sport-utility vehicle and a small wagon; and the Mondeo sedan.
In Wuhan, Ford faces a strong local state-owned competitor, Dongfeng Motor Corp., which has a full line of cars, vans and SUVs through partnerships with Nissan MotorCo., Honda Motor Co. and Peugeot SA.
"We just need to hang in there," Mr. Feng said by telephone. "We have every faith and hope in the next few years."
The good news is that Ford is adding a seventh model, the Kuga compact SUV, later this year. On Monday, Ford Chief Executive Alan Mulally will visit a Ford plant under construction in Chonqqing, which is located more than 1,000 miles west of Shanghai and is the manufacturing hub of Ford's China operations.
The factory will be Ford's third in China, part of a $5 billion investment plan it kicked off in 2006. The company is also building an engine plant and a transmission plant at the Chonqqing site.
When those three plants—plus a fourth being built in Hangzhou in the country's east—are operating, Ford will be able to build 1.2 million vehicles in China, which would equate to about 15% of the auto maker's projected global production in 2015.
Because of the heavy investments, Ford's China operations are losing money. Mr. Schoch said results will improve in the second half of 2012 as Kuga goes on sale.
Mr. Schoch added that he thinks Ford is "well positioned" in the hinterlands of central China.
Yet Ford isn't alone in pursuing growth in these regions. Other auto makers are also putting more focus on China's central and western provinces, too, especially now that some major coastal cities have become so overrun with cars and trucks that they are limiting registrations of new ones, said Bill Russo, an auto consultant in Beijing.
"It is only natural that the auto makers are starting to look at how to capture this coming growth. It's not just Ford," Mr. Russo said.
China has already surpassed the U.S. as the world's largest auto market. Ford expects China's overall auto sales to increase from 18.5 million new cars this year to around 30 million by 2020.
There are about 85 vehicles per 1,000 people in China. The U.S. has about 800 vehicles per 1,000 people.
Last year Ford grabbed about a 2% share of the Chinese market, compared with 7.2% for GM brands and 12.9% for Volkswagen. Toyota Motor Corp., Hyundai Motor Co. and Chinese companies such as Geely Automobile Holdings Ltd. are all ahead of Ford, too, according to LMC Automotive.
—Yoli Zhang in Beijing contributed to this article.