Bill Russo to Chair Automotive CEO Dialogue at JP Morgan China Summit

Bill Russo to Chair Automotive CEO Dialogue at JP Morgan China Summit

Beijing, China, June 10, 2014

Venue:  Grand Hyatt Hotel, Beijing
Time:  2:00pm

Discussion Topic: China’s Auto Industry:  Adapting to a More Sophisticated Market Jochem Heizmann Member of the Board of Management of Volkswagen AG, President & CEO Volkswagen Group China Chair: Bill Russo

Global carmakers seek China inroads

The Financial Times, April 18, 2014

There will be no Easter holiday for many senior US and European auto executives as they abandon their families and battle jet lag at the largest car show in the world’s largest car market.

The Beijing International Automotive Exhibition, or Auto China 2014, opens on Sunday at a time when the importance of the fast-growing China market to the fortunes of multinational car companies has never been clearer.

In the first quarter of this year passenger vehicle sales in China rose 10.1 per cent to 4.9m units, including a monthly record of 1.85m units in January – a figure that exceeded the 1.8m passenger vehicles sold all of last year in India, Asia’s third-largest economy.

From mass market automakers such as GM to luxury manufacturers Daimler and Ford unit Lincoln, global success depends on success in China.

“Two, three years ago Beijing was an emerging show. Beijing is now on everyone’s calendar,” says Robert Parker, president of Lincoln China. “I told my wife I’d miss her birthday and my children that I’d miss their Easter egg hunt, but all of [Ford’s] executive and leadership team has done that.”

One executive who will not be in Beijing is Mary Barra, GM’s under fire chief executive. But far from the recall scandal that has erupted in GM’s home market, the US automaker expects to sell its one millionth vehicle in China this year during the show.

That puts GM on track to comfortably exceed the 3.2m passenger vehicles its joint ventures sold last year in China, GM’s biggest market accounting for about one-third of total sales. Analysts at Morgan Stanley estimate that joint-venture dividends and royalties from China contribute almost 60 per cent of GM’s free cash flow.

Lincoln will formally enter China’s luxury market, currently dominated by Audi, BMW and Mercedes-Benz, later this year. It is also unveiling a new car at the Beijing show – something it has never done before outside the US.

Bill Russo, founder of automotive consultancy Synergistics, predicts that popular “crossover” models – part sedan, part SUV – and technology features will garner much of the attention at Auto China 2014. “You can’t just come into the market with a car,” he says. “You have to show that you’re different from everyone else because the passenger car segment in China has become very crowded and hyper competitive.”

The competitive pressures are being felt most acutely by China’s largest domestic auto manufacturers, which some analysts feel are on the verge of a crisis.

At the end of last year, Chinese-brand passenger sedans commanded 27.5 per cent of the market, according to the China Association of Automobile Manufacturers, with German sedans in second with 24.3 per cent. Just three months later, German sedans lead with 27.1 per cent compared to 23.7 per cent for their Chinese rivals.

The collapse has triggered an intense debate among Chinese car companies and policy makers about whether shock therapy – in the form of a relaxation of the industry’s 50 per cent foreign ownership limit – is required.

Critics say the policy has encouraged passivity among large state-owned car companies, which enjoy a steady flow of profits from their joint ventures with foreign manufacturers while failing to develop own-brand vehicles that can compete domestically, let alone in Europe and the US.

China’s largest carmaker, SAIC Motor, sold just 230,000 of its own-brand cars last year, compared to the more than 4.7m units sold by its joint ventures with GM and Volkswagen. Sales for China’s “domestic big 5”, which in addition to well-regarded private-sector creations Great Wall Motor and Geely include BYD, Changan and Chery Automobile, are down 10 per cent this year.

“The dramatic decline in domestic [brand] sales so far this year has exceeded even our bearish expectations,” Bernstein Research analyst Max Warburton wrote in a recent note. Bernstein had projected the market share of Chinese brand cars would decline by 2.5 percentage points over the next two years but instead, their share fell 2.6 per cent percentage points in the first quarter of this year alone.

Click here to read this article at FT.com

全球汽车论坛举行 中国因素关乎世界汽车业发展

China News, October 25, 2013

　　这是中国汽车业界高水平的论坛，政府、行业、企业代表层次颇高，热点话题层出不穷。政府部门的相关人士在论坛上表示：“随着越来越多国内企业走出国门，合资公司股比放开的问题也会提上议事日程”。在中国整车制造生产领域，外资持股比例不得超过50%，一直是政策的“红线”。虽然争议不断，但在近年来却持续升温。此次论坛，这个话题再一次成为了焦点之一，而且响应者有所增加。——编者

　　10月17日至18日，第四届全球汽车论坛在武汉成功举行。与会嘉宾紧紧围绕“汽车未来发展之路——目标·策略·模式”的主题展开精彩对话和研讨。

　　今年，中国汽车产销有望突破2000万辆大关，继续领跑全球汽车市场。但是，全球汽车产业共同面临诸多挑战，包括环境、油耗、能源、安全与交通管理等等问题，能否提出可行的、创新性的解决方案，已成为关乎汽车产业发展及汽车企业生存的关键因素。因此，政策制定者、重要的行业机构、汽车制造商、供应商、销售商和所有相关方之间的协同合作也正在变得更为重要。

　　全球汽车论坛组委会执行主席、中国国际贸易促进委员会汽车行业委员会会长王侠在开幕式致辞中说：“作为全球人口最多、新车需求量最大、汽车产业发展增长最快的国家，中国汽车产业在成为全球汽车产业发展引擎的时候，所面临的巨大挑战和深层次问题也应该引起全球的关注，因为这些问题的解决不仅关乎中国汽车产业的发展，也关乎世界汽车产业的发展。”

　　本田技研工业株式会社会长池史彦对于中国汽车工业的发展寄予厚望。他认为，面对来自于能源、环境的挑战，重要的是中国应该引领全球汽车行业的方向。而这样一个正确的方向和节奏，可以更好地为世界带来利益，而且重要的并不仅仅是提高销量，而是质量、安全以及环保，这样才能够更好地实现全球竞争，支持全球的市场更好地接受中国制造的汽车。

　　但事实上，中国要引领全球汽车的方向，要解决的问题还有很多。中国机械工业联合会会长王瑞祥指出，和世界发达国家相比，中国在自主创新、核心零部件和品牌打造等方面还存在着较大的差距。“要真正建设汽车工业强国，我们还有很长的路要走。”王瑞祥说。

　　美国博斯公司（Booz&Company）高级专家，Synergistics有限公司创始人、总裁BillRusso也指出，现在中国汽车市场仍然非常分散，自主品牌竞争非常激烈。所以，中国的汽车格局还是分而治之，没有凝聚力，而且本土的内部市场就是竞争非常的激烈。这个竞争层次还需要提升。

　　作为全球第一大汽车市场和生产国，未来中国能否引领全球汽车行业的方向？东风汽车公司总经理朱福寿提出：面对战略机遇期，中国汽车产业如何实现持续、健康发展，必须解决三个矛盾点：合资品牌与自主品牌在中国市场同台竞争、长期对峙的矛盾；中国企业走进国际市场的坚定决心与国际贸易壁垒的矛盾；汽车刚性需求与能源、交通、环境保护的矛盾。

　　广汽集团总经理曾庆洪的建议是：第一，加快自主创新能力的提升，特别是关键零部件与关键核心技术的突破；第二，加快整合重组；第三，加快经济结构调整，特别是产业布局调整。而四个跨越包括：从制造到创造的转型升级、生产基地向产业基地的跨越、从资产经营向资本经营的跨越、从经营产品到经营品牌的跨越。

　　江铃集团董事长王锡高则认为，为提高我国自主品牌汽车企业的自主研发能力，在引进国外先进生产技术时通过吸收、模仿、改进，逐步实现技术科研开发的成熟化，最终达到能够自主创新的目的。在这个环节中，改进是关键，不能一味地模仿外国的技术，而应该在学习的同时找出一条适合中国市场和国际市场实际需要的道路。

　　观致汽车董事长兼首席执行官郭谦表示，中国汽车发展经历了几个阶段，首先是能够掌握一些关键技术，或者是一个车身，一个变速器；其次，能掌握车的整合；第三，产品的平台化、模块化；第四构建品牌特征。在这方面，观致汽车已经打造了一个高起点的汽车，成为一种观致新模式。

　　福特汽车公司总裁兼首席执行官AlanMulally则给出了一个可持续的技术路线图：柴油以及汽油在内的传统内燃机及材料的改善，空气动力学以及电子设备等等的改善和系统的整合以及技术的连接性，汽车未来会变成一个可移动的设备，让人们可以连接到互联网，混合动力到纯电动车的发展。“在整个过程当中，需要协同合作，让全球各地的政府和企业一起来建设基础设施，这样才能够把这些成熟的技术带给消费者”，AlanMulally说。

　　大众汽车集团（中国）总裁兼首席执行官Prof·Dr·JochemHeizmann博士认为，汽车行业未来发展靠的是三个支柱：节约资源的生产、高效的移动性和智能的系统。他坚信，要实现这样一些目标，中国的汽车行业需要广泛的合作，包括和供应商进行合作，一个清晰稳定的法律框架和环境，并且能广泛和核心的参与者和合作伙伴建立关系，同时员工要建立紧密的团队合作精神。

　　就中国车企的国际化合作来讲，通过收购沃尔沃和其他一些国际公司，吉利汽车已走到了前列。沃尔沃汽车公司董事长、吉利控股集团创始人兼董事长李书福表示，今年8月，吉利沃尔沃在成都的国产化项目已经获批，这也是中国汽车工业进行中具有非常深远意义的一件事。目前，吉利已立志将中国打造成沃尔沃的第二本土市场，推动沃尔沃汽车在全球范围内的复兴进程。

　　第四届全球汽车论坛共安排16场公开环节，分别就战略机遇、跨国发展、未来汽车、后市场、金融创新、新能源战略、汽车消费、国际化人才等等一系列议题展开了精彩的讨论。论坛组委会执行主席王侠说，中国的汽车梦是世界汽车梦的重要组成部分，全球所有汽车人的共同梦想就是：汽车让社会更美好。这次融合了全球智慧为汽车工业发展建言献策的论坛，正用大家的创造性、建设性、前瞻性的思想，去引领汽车产业的新一轮发展。

　　本届论坛由中国国际贸易促进委员会汽车行业委员会和武汉市人民政府主办，吸引了来自世界20个国家和地区的900多名专业人士参与，其中200多人为外宾或来自境外，使“全球”论坛的性质进一步得到强化。(张宇星)

Click here to read the original article in China News （中文）

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

GM Said to Seek Deals in China to Reach 5 Million Goal

Bloomberg Business Week, February 5, 2013

A General Motors Co. SAIC-GM-Wuling Automotive Co. Baojun 630 sedan 

is displayed  at the 2011 Auto Shanghai car show in Shanghai.

The Chinese auto industry is overdue for consolidation and General Motors Co. (GM), with local partner SAIC Motor Corp., is interested in acquiring ailing automakers, according to four people familiar with the companies’ thinking.

GM, already the top foreign carmaker in China, aims to increase sales by about 75 percent by 2015 to 5 million, and a deal with another automaker is one possible way its ventures can expand, said the people, who didn’t want to be identified because the plans are private.

China’s government wants to preserve jobs even as it encourages consolidation that echoes the auto industry’s contraction a century ago that made the Detroit-based carmaker the world’s largest for eight decades.

Expanding in China isn’t as simple as going out and buying another plant. Foreign companies face restrictions on the number of partners they can have or how much of a factory they can own. Last year, China said it wouldn’t give incentives for further foreign-owned auto plants. That started raising the value of underused auto plants, of which there are plenty: 10 of China’s 71 automakers didn’t sell a vehicle last year.

“It is much easier to get the government to sign off on their acquisition than to approve new capacity,” said Han Weiqi, an analyst with CSC International Holdings Ltd. in Shanghai. “It is in line with the government’s mandate of consolidating the industry and reducing the number of players.”

Most Overcapacity

Two calls to the media office of the National Development and Reform Commission, China’s top economic planning body, weren’t answered. 

China has the world’s most overcapacity. Factories in China are able to produce about 10 million more vehicles than they currently make, according to LMC Automotive. That’s more than the number of autos made in any country other than China or the U.S.

GM and SAIC have plans to open two assembly plants in China in 2014. Even then, their joint ventures may be capable of making only about 4 million cars, sport-utility vehicles and microvans a year. One way to stay on track with the 5 million target set when growth was more exuberant would be by taking over assembly plants that aren’t operating at full production.

GM has built up what it calls a fortress balance sheet with more than $23 billion in cash that gives it flexibility to make acquisitions.

“There are no current plans to increase GM’s manufacturing capacity through acquisition or consolidation,” Dayna Hart, a GM spokeswoman in China, said this week in an e-mail.

SAIC, based in Shanghai, declined to comment.

China passed the U.S. in 2009 to become the world’s largest vehicle market and still has room to grow: While 627 in 1,000 in the U.S. own a car and 517 in Germany, according to the World Bank, in China, it’s only 44.

Best Month

The recovery of residential property prices in China’s major cities has accelerated since early 2012, potentially increasing demand for new passenger vehicles, said Kevin Tynan, Bloomberg Industries automotive analyst. GM sales in China last month soared 26 percent from a year earlier to 310,765, its best month ever. Buick and Chevrolet sales each gained 22 percent.

GM has been the largest foreign automaker in China for the past nine years, with about 14.7 percent of the market in 2012. GM said it earned $1.5 billion in 2011 from its joint ventures in China, or almost a sixth of the company’s $9.19 billion (GM) profit that year. Analysts project the automaker, which emerged from a government-financed bankruptcy in 2009, will report its 12th straight quarterly profit (GM) on Feb. 14.

While GM has many opportunities among Chinese automakers, which of them is the most probable target is a complex equation that depends on proximity to markets, ease of transportation and incentives offered by local governments in return for the investments, said Han, the Shanghai-based analyst.

Detroit, Chicago

Some local governments may resist investment and management from overseas or even from another city in China.

“Consolidation does not come easily in China because the governments, central and local, own 50 percent or more of most of the ventures,” Michael Dunne, head of industry researcher Dunne & Co., said in an e-mail. “It might be a good idea for Chicago to take over management/ownership of Detroit but getting there is not easy, even unthinkable.”

China signaled in late 2011 that it would be less inclined to sign off on new plants when it said foreign automakers would only be eligible for incentives on new factories approved before Jan. 30, 2012.

A struggling domestic manufacturer’s ability to build cars in China “becomes an asset,” said Matthew Stover, an analyst with Guggenheim Securities LLC based in Boston. “You’ve got a license, you may not be making many cars with it and your facilities may need a lot of help. But you have a license, so you then become an acquisition.”

Volkswagen’s Push

GM needs to remain aggressive in China. It faces increased competition from Volkswagen AG as the German company aims to become the top-selling automaker in the world by 2018. Among non-U.S. foreign automakers, Wolfsburg, Germany-based VW has fared best in China, almost dethroning GM as the best-selling foreign car company in the country last year.

VW, which, unlike GM, includes Hong Kong in its China tallies, said deliveries climbed 24.5 percent to 2.81 million while sales of GM and its Chinese joint venture gained 11 percent to a record 2.84 million.

VW’s sales were helped by the introduction of new versions of its Lavida and Audi A4L in the third quarter and from a territorial dispute that fueled anti-Japan sentiment. In September, Toyota Motor Corp. and Nissan Motor Co. reported the steepest drop in sales in China since at least 2008.

Ford, Infiniti

Other foreign automakers have ambitions for China as well. Nissan, for example, moved the headquarters of its Infiniti brand to Hong Kong to try to gain share in Asia. Ford, which has been a laggard in China, says that breaking into that market is a priority. The Dearborn, Michigan automaker, which sold 626,616 vehicles in China last year, a 21 percent gain, is seeing some early success: Its Focus compact rose to the best-selling sedan in China last year from 10th in 2011.

Hyundai Motor Co. and affiliate Kia Motors Corp., both based in Seoul, also see potential in China, with their combined sales rising 14 percent in 2012.

All of this growth comes as auto sales continue to gain, if not at the same pace as in the past. Auto deliveries may increase 7 percent to 20.65 million this year, the China Association of Automobile Manufacturers said in January. A consensus is forming that sales may rise to as many as 30 million vehicles by 2020, said Bob Socia, GM China president.

“You need to stay ahead of the curve,” he told reporters last month in Detroit. “Are we ready to announce another plant? No, but clearly we’re looking at what we’re going to need to handle our expansion.”

He declined to say how GM is looking to expand beyond two new plants planned to be completed 2014.

U.S. Consolidation

The idea of GM growing through acquisition harkens back to GM’s origins, when founder Billy Durant used his company’s coffers to gobble up rivals as the nascent U.S. industry was consolidating. Few Americans today remember Winton Motor Carriage Co., the Oakland Motor Car Co. or other automakers, also called original equipment manufacturers (OEMS or OEs), of the early 1900s.

China is ripe for a similar reckoning, Wilbur Ross, the billionaire owner of parts supplier International Automotive Components Group, said in Detroit last month during a presentation at the Automotive News World Congress.

“The U.S. once had 125 domestic OEs, but has devolved down to a small handful,” Ross said. “At present, China has about 100 OEs, many of which are marginal and lack manufacturing and distribution scale and have limited market shares.”

China’s Capacity

China, with more than 110 auto brands, has about 36 percent of its car-making capacity unused, the equivalent of 10 million vehicles worth of over-capacity, according to LMC Automotive.

Of the 71 automakers tracked by the China Association of Automobile Manufacturers, 36 companies sold fewer than 10,000 vehicles in 2012.

Jilin Tongtian Automobile Co., Jiangxi Huaxiang Fuqi Motor Co. and Liaoning Huanghai Commercial Vehicle Manufacturing Co. are among the 10 that didn’t sell any vehicles last year, according to association data. Han, the CSC analyst, said those aren’t ideal acquisition targets.

Local China automakers don’t spend as much to develop new vehicles as global automakers do, Ross said. As a result, the 41 percent of the market they divvied up last year is shrinking, he said.

Future Unclear

While there may be agreement from industrialists such as Ross to China’s Communist Party that automakers need to consolidate, how such a thing would happen is wide open to speculation, debate and innovation.

One notion is that foreign automakers would need to grow through their local partners, which might be better able to negotiate a fair market value for state-owned assets, said Bill Russo, president of auto industry consultancy Synergistics Ltd.

“A more likely scenario will be partnerships among local automakers to allow assets to be shared or transferred,” he said in an e-mail. “In such a scenario, foreign OEMs might work with their local partner to absorb under-performing assets into their existing Chinese JV.”

Alternatively, foreign automakers may not want some local capacity in its current form, Jeff Schuster, an industry analyst with LMC Automotive. An acquiring company may be able to win approval to replace outdated factories to create jobs.

“More likely they will continue to come in and build new capacity and much of the old will be shuttered if consolidation takes place,” he said in an e-mail.

Partnership Acquisitions

The GM-SAIC partnership has acquired money-losing factories in China in the past, including assets related to Daewoo Motor Co. after GM bought a controlling stake in the bankrupt South Korean automaker.

GM and SAIC are partnered on Wuling and its Baojun car brand as part of a strategy to sell vehicles to an emerging working class outside of the major cities, such as Shanghai.

Last year, GM added 700 new stores in China and expects to open another 400 this year to have a total of 4,200 locations, Socia, the division president, said.

GM’s five-year China plan announced in April 2011 called on doubling its sales to about 5 million in the country from 2.35 million in 2010 and introducing 60 new or refreshed vehicles in there within the same time period.

The announcement followed years in which GM’s China sales increased 68 percent in 2009 and 29 percent in 2010, before the country’s rapid economic growth slowed.

With its Chinese partners, GM has eight production centers in China with the capacity of building 3.35 million vehicles this year, according to researcher IHS Automotive.

More Growth

GM, which strives to build vehicles where they’re sold, will have straight-time capacity to build as many 4 million units in 2015 in China, according to IHS estimates. That includes the two new factories in Wuhan and Chongqing coming online in 2014, said the Northville, Michigan-based research firm.

The automaker aims to outpace the market again in 2013, Socia told reporters in Detroit.

“You have lots of people that the government wants to move into the middle class,” he said. “You’ve got 150 cities that are over a million in population. It’s pretty ripe for further expansion.”

To contact the reporters on this story: Tim Higgins in Detroit at thiggins21@bloomberg.net; Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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China Is Key to Volkswagen's Global Goal of Being No. 1 Automaker

Advertising Age, November 26, 2012

Most Buyers Outside China's Biggest Cities Will Be First-Time Car Owners

As Volkswagen plots a course toward its goal of becoming the world's biggest automaker by 2018, it's increasingly clear that the path to global dominance runs through places such as Western China's Lanzhou.

The capital of the landlocked Gansu province, which borders the Gobi Desert, is home to 11 dealerships for VW and its sibling brands, Audi and Skoda. With a population of 3.6 million and gross domestic product per capita of $4,100, Lanzhou is the type of smaller city away from China's prosperous east coast that VW is targeting in its next phase of expansion.

"Volkswagen's early entry into China meant that our outlets focused on bigger, developed cities," said Soh Weiming, the carmaker's exec VP in China. "Now, we have to expand beyond them."

Less-developed Chinese cities are VW's "bread and butter," Mr. Soh said last week in an interview at the Guangzhou auto show.

Increasing sales in such far-flung places is the primary challenge facing Jochem Heizmann, who took over as VW's China country head on Sept. 1.

The appointment of Mr. Heizmann, a former trucks chief and head of production planning at the company, underlines the importance of China in VW's plans to overtake General Motors and Toyota Motor Corp. It is also the first time that VW's executive overseeing China has been on the company's group management board, a move that VW says streamlines its daily business there.

At stake is a market that IHS Automotive and Macquarie Securities project will eclipse the combined sales of the United States, Germany and Japan in three years.

VW Group's Volkswagen, Audi and Skoda brands account for a fifth of China's passenger vehicle deliveries, well ahead of General Motors, at 9.9% with its Buick and Chevrolet brands, according to researcher LMC Automotive.

VW intends to consolidate its lead with aggressive investment that outpaces the expansion plans of its rivals. The German company expects that to help it win over the next wave of Chinese car buyers, made up of mostly first-timers who have little brand allegiance.

"Chinese consumers are notoriously disloyal," said Bill Russo, president of Synergistics Ltd., a market researcher in Beijing. "Volkswagen's challenge is continuing to build customer relationship management, and be geographically in the high-growth regions."

China's smaller cities will account for 60% of new car deliveries by the end of the decade, up from 40% in the past 10 years, McKinsey & Co. predicts. Car sales in so-called third- and fourth-tier cities will grow 10% annually until 2020, vs. 4% in Shanghai and Beijing, McKinsey said.

The country, already the world's largest auto market, will grow in importance as a debt crisis dampens vehicle sales in Europe.

"Globally, growth will be a bit slow," Mr. Heizmann told reporters on Nov. 21. "China is different," he said. "In China, every business, every brand is selling especially well."

VW's joint ventures with SAIC Motor Corp. and China FAW Group Corp. operate or have announced plans for 11 factories in China, with a targeted capacity of 4 million vehicles a year by 2018. The automaker, which also owns Seat, Bentley and Lamborghini, will have to persuade consumers such as 23-year-old flight attendant Shiny Yao to buy from and stay with the group.

"There are so many choices," said Yao, a Shanghai resident who bought a Honda Civic last month. "If I switch cars, I know I'll not buy another Honda. I'll definitely try something new."

VW plans to recruit more dealers, increase the number of locally made models for its Skoda brand and introduce plug-in hybrid vehicles for sale in the "near future," according to a company statement.

Sales for Skoda, the Czech carmaker that VW took over after the collapse of communism, rose 7% to 181,900 units in China in the first nine months of this year. The country became Skoda's biggest market in 2010, three years after it started local production.

Volkswagen's China sales will reach almost 2.7 million vehicles this year, or 30% of its global total, Norddeutsche Landesbank predicts. The automaker sold 2.3 million vehicles in China in 2011. "For 60 years, the most important market for VW was Germany; they sold around 1 million cars there," said Norddeutsche Landesbank analyst Frank Schwope. "Four or five years back, China overtook the German market. Now VW is still going to sell 1 million cars in Germany, but 2.7 million cars in China."

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For VW, the Path to Global Dominance Leads Through China

Bloomberg News, November 25, 2012

Jochem Heizmann, president and chief executive officer of Volkswagen Group China. Photographer: Chris Rank/Bloomberg

As Volkswagen AG (VOW) plots a course toward its goal of becoming the world’s biggest automaker by 2018, it’s increasingly clear that the path to global dominance runs through places like Lanzhou, in western China.

The capital of landlocked Gansu province, which borders the Gobi Desert, is home to a total of 11 dealerships for VW and its sister brands, Audi and Skoda. With a population of 3.6 million, and GDP per capita of about $4,100, Lanzhou is the type of smaller city away from China’s prosperous east coast that VW is targeting in its next phase of expansion.

“Volkswagen’s early entry into China meant that our outlets focused on bigger, developed cities,” said Soh Weiming, the carmaker’s China Executive Vice President. “Now, we have to expand beyond them.”

Less-developed Chinese cities are VW’s “bread and butter,” Soh said in an interview at the Guangzhou Autoshow on Nov. 21.

Increasing sales in such far-flung places is the primary challenge facing Jochem Heizmann, who took over as VW’s China country head on Sept. 1.

The appointment of Heizmann, a former trucks chief and head of production planning at the company, underlines the importance of China in VW’s plans to overtake General Motors Co. and Toyota Motor Corp. (7203) It is also the first time that VW’s executive overseeing China has been on the company’s group management board, a move VW says increases flexibility and streamlines its daily business there.

Disloyal Customers

At stake is a market that IHS Automotive and Macquarie Securities project will eclipse the combined sales of the U.S., Germany and Japan in three years. VW’s Volkswagen, Audi and Skoda brands account for a fifth of China’s passenger vehicle deliveries, well ahead of General Motors Co. (GM), at 9.9 percent with its Buick and Chevrolet nameplates, according to researcher LMC Automotive. Hyundai Motor Co. stands at No. 3 with 9.7 percent, LMC said.

VW intends to consolidate its lead with aggressive investment that outpaces that planned by rivals. VW’s China ventures have pledged to spend 9.8 billion euros ($12.6 billion) in China through 2015, while GM says it will invest as much as $7 billion in the five years to 2015.

The German company expects that spending differential to help it win over the next wave of Chinese car buyers, made up of mostly first-timers who have little brand allegiance.

“Chinese consumers are notoriously disloyal,” said Bill Russo, president of Synergistics Ltd., a market researcher in Beijing. “Volkswagen’s challenge is continuing to build customer relationship management, and be geographically in the high-growth regions.”

Fourth-Tier

China’s smaller cities will account for 60 percent of new car deliveries by the end of the decade, up from 40 percent in the past 10 years, McKinsey & Co. predicts. Car sales in so- called third- and fourth-tier cities will grow about 10 percent annually until 2020, versus 4 percent a year in Shanghai and Beijing, McKinsey said.

The country, already the world’s largest auto market, is set to grow in importance, as a drawn out debt crisis weighs on vehicle sales in Europe.

“Globally, growth will be a bit slow,” Heizmann told reporters on Nov. 21. “China is different,” he said. “In China, every business, every brand is selling especially well.”

Trained as an engineer with a doctorate from Karlsruhe University in Germany, Heizmann is no stranger to the country.

Shanghai Professor

The 60-year-old oversaw factory expansion in China almost two decades ago when he was in charge of planning and commissioning new passenger-car plants at VW. From 2001 to 2007, Heizmann oversaw global production for Audi (NSU), which now counts China as its biggest market. In 2004, he was made a guest professor at Shanghai’s Tongji University, which has a research partnership with Audi.

VW’s joint ventures with SAIC Motor Corp. (600104) and China FAW Group Corp. operate or have announced plans for 11 factories in China, with a targeted capacity of 4 million vehicles a year by 2018. The carmaker is also considering a new 300,000-unit plant in Changsha in southern Hunan province, a person familiar with company’s plans said this month.

VW, based in Wolfsburg, Germany, is currently negotiating an extension to its tie-up with FAW, with which it runs a joint venture making the Jetta sedan and the Audi A6L, a luxury model that was stretched to boost its appeal to Chinese buyers.

Skoda Sales

The automaker, which also owns Seat, Bentley and Lamborghini, will have to persuade consumers like 23-year-old flight attendant Shiny Yao to buy from and stay with the group.

“There are so many choices,” said Yao, a Shanghai resident who bought a Honda Civic last month. “If I switch cars, I know I’ll not buy another Honda. I’ll definitely try something new.”

VW plans to recruit more dealers, increase the number of locally made models for its Skoda brand, and introduce plug-in hybrid vehicles for sale in the “near future,” according to a company statement.

Sales for Skoda, the Czech carmaker that VW took over after the collapse of communism, rose 6.8 percent to 181,900 units China in the first nine months of this year, company data show. The country became Skoda’s biggest market in 2010, three years after it started local production.

Customer Complaints

Heizmann will also have to work to hold on to existing customers unhappy over faults this year with a direct-shift gearbox system that affected some cars, said Jochen Siebert, Shanghai-based managing director at JSC Automotive Consulting, an industry researcher.

The new China chief “still has to give more reassurance to customers that there isn’t a problem with the engine,” Siebert said. “There have been a lot of problems and they need to find a way to better react.”

The automaker agreed to extend the warranty for the automatic transmission technology to 10 years from the standard two years after customers complained and the quality regulator in March demanded a plan to rectify the problem. Drivers complained of noise, vibrations and, in a few cases, a failure to start in humid weather, the company said in May.

Volkswagen’s China sales will reach almost 2.7 million vehicles this year, or about 30 percent of its global total, Norddeutsche Landesbank predicts. The automaker says it sold 2.26 million vehicles in China in 2011.

“For 60 years, the most important market for VW was Germany; they sold around 1 million cars there,” said Norddeutsche Landesbank analyst Frank Schwope. “Four or five years back, China overtook the German market. Now VW is still going to sell 1 million cars in Germany, but 2.7 million cars in China.”

Click here to read this article at Bloomberg News

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Chua Kong Ho at kchua6@bloomberg.net

Luxury Auto Market in China Remains Robust

Investor Conference Call, November 8, 2012

THE PULSE

Coleman Research Group is hosting a conference call to evaluate the outlook for the Chinese Luxury Auto Market. We’ll evaluate growth strategies for the German OEM leaders, market size, competitive forces, demographics, key brands and dealership dynamics. To register or for more information please contact Carla Sison at GRIEvents@colemanrg.com. Luxury Auto Market in China Remains Robust Premium Vehicle Segment Appears Immune to Market Dynamics Call Date: Thursday, November 8, 2012, 10:00 AM EST CRG Host: Michael Cohen CRG Expert: William Russo Founder and President Synergistics Ltd. About The Call Affluent Chinese car buyers shun Chinese brands in favor of blue-chip European premium brands. The Big Three German OEMs continue to dominate high-end sales with Audi offering the best-selling premium import. Premium vehicle (PV) sales increased 36% during the first nine months of 2012 and are expected to grow 15-20% annually through 2020, reaching 2.7M units over that timeframe. Automobiles are the number one priority for China’s high-end and middle class consumers but carmakers must keep pace with changing tastes and an increasingly competitive backdrop.     With our expert, Bill Russo, we’ll explore China’s premium car market and sales growth expectations for 2012 and beyond. We’ll evaluate the dominance of the Big German Three and the opportunity for smaller players to penetrate the market. We’ll assess Chinese consumer preferences, growth of the middle class and high net worth individuals. We’ll appraise how the Chinese demonstrate less brand loyalty than their U.S. counterparts, offering opportunities for new entrants. We’ll conclude with a look at how to leverage strategic dealer partners to accelerate market access.  CARLA SISON Vice President Global Research Intelligence 646-695-3281 MICHAEL COHEN Director Global Research Intelligence 646-783-6052 JESSICA OWEN-SMITH Research Manager Global Research Intelligence 646-307-8277 Coleman Research Group's expert is prohibited from disclosing any proprietary, confidential, or material non-public information, and will decline to answer any question that may lead to the disclosure of such information. The information in the GRI event series does not constitute advice as to the value of securities or as to the advisability of investing in, purchasing, or selling securities. Furthermore, neither members of the GRI team nor Coleman Research Group is acting as an investment adviser, and no information contained in the series should be construed as investment advice. Coleman Research Group, Inc., 120 West 45th Street, 25th Floor, New York, NY 10036 Tel: 212-223-0185 | Email: crg-gri@colemanrg.com | www.colemanrg.com

VW Threatens to End GM’s Eight-Year Lead in China

Bloomberg News, October 24, 2012

After trailing General Motors Co. (GM) in China for eight years, Volkswagen AG (VOW) edged ahead in the third quarter, putting it one step closer to its goal of becoming the world’s biggest automaker.

VW’s deliveries in the country jumped 21 percent last quarter, almost triple GM’s growth, to 704,991 vehicles, according to figures the company reported yesterday. That beat the 664,765 that GM reported earlier this month.

Enlarge image

Volkswagen introduced new versions of its Lavida and Audi A4L sedans in the third quarter, and benefited from a territorial dispute that fueled so much anti-Japan sentiment that Toyota Motor Corp. and Nissan Motor Co. saw their September sales in China tumble the most since at least 2008. Photographer: Nelson Ching/Bloomberg

At stake is supremacy in the world’s biggest auto market, which analysts say will likely exceed those of the U.S., Japan and Germany combined three years from now. China is the biggest market for both companies.

“Being No. 1 in China means a lot to their global development,” said Harry Chen, an analyst with Guotai Junan Securities Co. in Shenzhen. “Volkswagen and GM will go through a period of time fighting at close quarters in China and they may take turns grabbing the lead.”

Though the comparisons aren’t perfect -- VW counts Hong Kong and Macau and excludes trucks, while GM does the opposite - - Kevin Wale, GM China’s outgoing president, yesterday confirmed that his company had ceded the top spot for the quarter. Volkswagen declined to comment.

With only one quarter left, GM’s lead of about 77,000 units may be enough for the company to hang on to the annual China sales crown.

The Buick Excelle and Chevrolet Sail were the top two selling cars in China for the first nine months, while VW’s top seller, the Jetta, ranked fourth, according to the China Association of Automobile Manufacturers. VW had five of the 10 best-selling cars through September, while GM claimed three spots, according to CAAM.

Japanese Backlash

Volkswagen introduced new versions of its Lavida and Audi A4L sedans in the third quarter, and benefited from a territorial dispute that fueled so much anti-Japan sentiment that Toyota Motor Corp. (7203) and Nissan Motor Co. (7201) saw their September sales in China tumble the most since at least 2008.

Most GM sedans were introduced two to three years ago and are reaching the end of their product life cycles, making them less attractive to car buyers, according to researcher LMC Automotive.

With more refreshed models in showrooms just as Chinese buyers have turned away from Japanese brands, Volkswagen has been better able to capitalize on the tensions than GM, said Steve Man, a Nomura Holdings Inc. (8604) analyst. Volkswagen is also expanding production capacity faster -- 38 percent growth this year versus GM’s 26 percent, JPMorgan Chase & Co. (JPM) estimates.

Cushion Against Europe

Volkswagen isn’t alone in gaining on GM. South Korea’s Hyundai Motor Co. (005380) and affiliate Kia Motors Corp. (000270) saw their combined sales rise 9.5 percent to a record in September. Ford Motor Co. (F), whose Focus compact is the No. 3 selling car in China this year, reported sales jumped 35 percent.

China has helped cushion the slump in Europe, where car deliveries are headed for their biggest fall in 19 years as the region’s financial crisis continues. Volkswagen, which aims to be the world’s leading automaker by 2018, yesterday reported its biggest quarterly earnings drop since 2009 because of Europe.

Though auto sales in China have slowed in recent months, the market has plenty of room to grow. Vehicle ownership in the country was equivalent to 4.7 percent of the population, versus about 51 percent in Japan and 81 percent in the U.S., according to 2009 figures from the Japan Automobile Manufacturers Association.

Following Jeep

Volkswagen in 1984 became the second foreign auto brand, after Jeep, to produce cars in China. But more recently it has trailed GM as the Detroit-based company and its Chinese partners cranked up production of Wuling minivans, which have outsold all other four-wheel vehicles in China for the past eight years.

While quarterly comparisons only go back to mid-2009, annual data shows Wolfsburg, Germany-based Volkswagen hasn’t held the lead in China since 2004.

Volkswagen is planning to invest 14 billion euros ($18 billion) from 2012 to 2016 in the country to regain its lead. GM said last year it planned to invest as much as $7 billion in China from 2011 to 2015.

To spur sales, GM is expanding capacity and boosting production of its luxury Cadillac lineup in China, Chief Executive Officer Dan Akerson told reporters in Sao Paulo on Oct. 21.

“Of course we’d like to see a more robust market in China,” Akerson said. “To me, it’s not whether you’re the biggest car manufacturer. It’s whether you want to be the most profitable.”

GM’s ability to fend off Volkswagen could hinge on Wuling’s minivans, which start below $5,000 and are used as both passenger-and cargo vehicles. Wuling accounts for about half of the Detroit automaker’s deliveries in China.

Cadillac Slumps

Wuling September sales fell 2.5 percent -- more than the total market -- as the slowing economy hit demand for cheaper vehicles as less-wealthy buyers reined in spending. Speculation the government may subsidize new minivans and small cars to spur growth in rural areas has also made some buyers delay purchases, said John Zeng, director of Asian forecasting at LMC in Shanghai.

While a 3.2 percent increase in Chevrolet sales helped GM avoid an overall drop, deliveries of Buicks tumbled the most since at least 2010 and Cadillac sales fell for a sixth straight month. Those brands are important to GM because they generate more than twice as much profit per car as Wuling, according to LMC.

GM, which like Volkswagen has ventures with SAIC Motor Corp. (600104) and China FAW Group Corp., is adding SUVs, a category that’s been expanding about nine times faster than China’s overall auto industry.

‘Malibu Disaster’

A 1.6-liter engine version of the Chevrolet Malibu, GM’s second-best selling car in the U.S. this year, has been a disappointment since it hit the market in February, said Lin Huaibin, an analyst in Shanghai with researcher IHS Global Insight.

“Malibu is a disaster,” Lin said. The car was unable to effectively compete against the Superb from VW’s Skoda brand and Hyundai’s Sonata, which has sold about twice the 29,000 units GM has managed with the Malibu this year.

Competition between GM and VW, the No.2 and No.3 global automakers, after Toyota, is entering a new era with both announcing in the past four months changes in the leadership of their China businesses.

“Both companies have proven they are strong in this market,” said Bill Russo, Beijing-based senior adviser at Booz & Co. “They are the two big fish in the pond and that’s not going to change even with a shuffling of management.”

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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