Used Lamborghinis Linger on H.K. Lots Amid China Lull

Bloomberg Business Week, July 29, 2012

A model poses near luxury Lamborghini SpA sports cars during the Shanghai International Circuit Club Challenge, in Shanghai, China. Photographer: Qilai Shen/Bloomberg

Waiting lists for ultra-luxury cars in Hong Kong are getting shorter and used-car lots are cutting prices on Lamborghinis, Ferraris and Bentleys in the latest sign of China’s slowdown.

At first glance, the numbers are deceiving: Sales of very expensive new autos surged 47 percent in the first six months, according to industry analyst IHS Automotive. Look more deeply, however, and another picture emerges, especially in the city’s used-car lots.

Dealers of such second-hand cars say job cuts and the worsening global economic outlook are creating uncertainty among the finance-industry and expatriate professionals who make up the bulk of their buyers.Morgan Stanley (MS) (MS), Citigroup Inc. (C) (C) and Deutsche Bank AG are among firms with Asian headquarters in Hong Kong that are cutting jobs worldwide.

“The more expensive the car, the more dry the business,” said Tommy Siu at the Causeway Bay showroom of Vin’s Motors Co., the used-car dealership he founded two decades ago. Sales of ultra-luxury cars have halved in the past two or three months, he said. “A lot of bankers don’t want to spend too much money for a car now. At this moment, they don’t know if they’ll have a big bonus.”

Unlike Rolex watches, Gucci handbags and other luxury goods, Hong Kong’s car market hasn’t been distorted by the more than 28 million mainland Chinese who flocked to the city last year. Mainland shoppers spend 44 billion euros ($54 billion) on luxury goods while traveling overseas to locations such as Hong Kong and Europe, according to CLSA Asia-Pacific Markets.

‘True Look’

“In the car market, it’s not buying like watches,” said Booz & Co.’s Russo. “Here you are getting a true look at a category of product bought by Hong Kong buyers. It’s a pulse check on how Hong Kong residents view the stability of the financial system.”

The new-car figures look better because of some short-term developments. The release of the latest models from Ferrari and Lamborghini and the opening of the first Hong Kong showroom by McLaren -- maker of the 592-horsepower MP4-12C carbon-fiber coupe -- have given sales a bump. Meantime, depressed demand in Europe means a bigger allocation of new cars for Hong Kong dealers.

With the highest proportion of billionaires in the world, according to a Boston Consulting Group report released in May, Hong Kong has enough buyers unaffected by market conditions to keep new sales going, said Bill Russo, a Beijing-based senior adviser at Booz & Co.

‘Saying Something’

There were 273 new Bentleys, Lamborghinis, Rolls Royces, Ferraris, Aston Martins and McLarens sold in the six months to June 30, up from 186 in the first half of last year, according to Englewood, Colorado-based IHS. This outpaced the 23 percent gain in the U.S., the world’s richest nation, and the 40 percent jump in mainland China, the world’s biggest car market, IHS data show.

For these buyers, price isn’t an issue and settling for second-hand is not an option, Russo said.

“It’s the brand image and it says something about you,” said Russo, who was formerly Chrysler Group LLC’s China head. “Used-car buyers are more price sensitive and economic cycles will affect these shoppers more. They are paying for the cars with their income as opposed to their savings.”

The European debt crisis is slowing expansion in emerging markets including China, the International Monetary Fund said this month, when cutting its global economic growth forecast for next year to 3.9 percent from 4.1 percent.

Aspirational Buyers

Hong Kong’s economy eked out 0.4 percent growth in the first quarter, the slowest since escaping the recession caused by the 2008 global credit crisis. Average daily turnover on the city’s stock exchange, the world’s fourth biggest, was 22 percent lower in the first half than the corresponding period of 2011. Asia-Pacific takeovers have dropped 22 percent to $306 billion, according to data compiled by Bloomberg.

People shopping in the second-hand market are typically aspirational buyers who are more likely to sit it out rather than trade down when they can’t afford the brand they want.

“An uncertain economic outlook encourages consumers, particularly those without a buffer provided by sizeable financial assets, to pause on big-ticket purchases,” said Tom Rafferty, a London-based Economist Intelligence Unit analyst.

Vin’s Siu said the drop in high-end customers who typically account for 30 percent of turnover at his 300-lot business was the most important factor behind a 20 percent drop in total sales. Expatriates made up about 70 percent of customers, he said. “A lot of expats are leaving Hong Kong,” he said. “For every 10 who are leaving, two are coming.”

Mercedes Discount

To spur demand, dealers in pre-owned cars are slashing their prices -- together with how much they’re willing to pay sellers.

A yellow, 2011 Lamborghini Gallardo 550 recently listed for HK$2.88 million ($371,000) on second-hand car website 28car.com is about $830,000 cheaper than a new model -- chump change that would buy a new Mercedes E-Class Coupe to run the kids to school. A silver-gray 2011 Ferrari California with 980 kilometers (613 miles) on the clock is available for HK$2.68 million. That’s a 19 percent discount to a brand new 2012 vehicle, and HK$400,000 cheaper than a 2011 version sold by Ferrari’s official in-house used-car dealer.

“We started cutting prices at the beginning of the year to stimulate sales because the market was slow,” said Tony Chan, a director at GP Motors a short walk up the hill from Vin’s, adding that second-hand Ferraris and Bentleys are leaving the 30-lot dealership at half the speed of last year.

Someone looking to sell a 2009 Bentley Continental will have to accept HK$1.7 million, a third less than they would have received at the start of the year, Chan said.

In the basement automall beside Hong Kong’s Grand Hyatt hotel, trader Samuel Chui said he has stopped buying more cars.

“People want cash now, they don’t want the commodity,” said Chui, who reduced the number of car lots he rents from 15 to nine at the end of last year as business began to slow. “We’ve got plenty of stock and it’s not moving.”

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

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

U.S. Automakers See Their Cars Zip in China

The Atlantic, July 19, 2012


Crowds swarmed the Beijing Auto Show in April but they thronged thickest around foreign-made cars, illustrating the challenge ahead for domestic Chinese manufacturers.

About 20 million new cars are expected to be sold in China this year, with sales in May up almost a quarter year-on-year. The market is projected to grow to between 30 million to 40 million by 2020 in a nation where car ownership is still low - in 2009, there were just 47 cars per thousand people compared to 802 in the US. According to these predictions, there will be more cars in China in 2030 than there were in the entire world in 2000. 


"The May results are a reflection of the fundamentally strong growth drivers that exist in China - mainly continued urbanisation and growth of the middle-class population, recovery from last year's supply chain disruptions, and pent-up premium car demand," Bill Russo, head of Synergistics auto consultancy in Beijing and a former head of Chrysler in China, told The Financial Times.


But this picture - rosy for carmakers, alarming for environmentalists - masks a deep divide that is seeing international brands eclipse their Chinese counterparts. Thirty years after China signed joint venture agreements with General Motors and Volkswagen, Chinese brands continue to occupy the competitive low-end market while high-end foreign brands dominate the soaring luxury car market.


Sales of BMW and Audi cars in China in May were up 31 percent and 44 percent respectively. To meet demand, BMW aims to quadruple mainland production capacity while Audi sales head Peter Schwarzenbauer said Audi only established dealers in 187 out of 304 Chinese cities with a population of a million or more, leaving plenty of room for expansion.


Beijing is doing its best to protect its auto firms, banning government departments from buying foreign cars for their official fleets (black Audis with tinted windows are a particular favorite of government officials)and forcing overseas makers such as GM and VW to develop indigenous brands with their joint venture partners as part of a bid to ensure a more rapid technology transfer to China.


Chinese manufacturers are also attempting to boost their brands rather than simply competing on price.


"Our focus is our product, a car that can provide a better experience, more special than other cars. Personalized services and the driving experience should be a new sales point," Wu Xinfa from Dongfeng Yulong Auto Company told China Radio International.


But persuading a Chinese population that is convinced that foreign brands in general are more stylish and reliable than Chinese brands will be a tough task.
"The Japanese and Koreans built up global reputations but it took them 20 or 30 or 40 years - and that still did not erode the global advantage of those that existed before," Kevin Wale, head of GM in China, told The Financial Times. "I think our reputation [in China] will last for an incredibly long time."

TOM SPENDER - Tom Spender is a journalist in Beijing, China.

Trade Wars

Beijing Review, July 16, 2012


Russo quote extract:


Bill Russo, who is currently a senior advisor at Booz & Company, and formerly the vice president of Chrysler Northeast Asia at Chrysler LLC. said, "The latest round in the escalating trade wars between the U.S. and China has taken an unambiguously protectionist turn. By targeting SUVs [sport utility vehicles] made in the United States, there is hardly a basis for calling this a measure that is designed to correct any unfair advantage held by the American auto industry. The companies impacted are Chrysler and to a lesser extent General Motors (GM), and their imported products are not directly competing with Chinese automakers, as they occupy far higher price positions even before the tariff. The Obama administration is perfectly justified in challenging the WTO compliance of this measure, as it is clearly being levied as a punitive measure."


Click here to read full article

Russo to Present "Towards a Green Automotive Industry" at Worldsteel Seminar

Beijing, China, July 19, 2012

The World Steel Association (worldsteel) and the China Iron and Steel Association (CISA) will host the LCA and Steel Seminar on 19 July 2012 at the Hotel Peninsula Beijing.


国际钢铁协会和中国钢铁工业协会诚挚邀请您参加于2012年7月19日在北京王府 半岛酒店召开的“钢铁与生命周期评估”研讨会。

Click here to read the event press releaseClick here to access the seminar presentationsClick here to view Bill Russo's presentation "Towards a Green Automotive Industry" 

Russo Joins Panel Discussion at 4th China Economic Forum in Dalian

Dalian, China, May 26-27, 2012


The 4th Dalian China Economic Forum was held at the Dalian Hilton Hotel from May 26 to May 27, 2012. This was the first time that the forum was held for two days. Roughly 80 important figures in the economic circle and over 500 entrepreneurs participated in this event. With the main theme: "Reform and Opening-up: Driving Force of Economic Development", the enterprise development will be discussed during 8 themed interactive forums.


Click here to view the conference announcement
News on the panel discussion

Bracing for the euro fallout

The South China Morning Post, June 17, 2012


As Greeks vote today in elections that may trigger the country's exit from the euro zone, Chinese industries are preparing for worse to come from the debt crisis




"Should I stay or should I go" could be Greece's new national anthem, amid rising fears over its ability to stay in the euro zone. It's possible exit is turning up the heat on Chinese industries and government officials as they brace for economic fallout that could dwarf that of the 2008 global financial crisis.

Today's poll in Greece could produce a left-wing government determined to stay in the euro zone but set on rejecting key conditions imposed as part of a European Union and International Monetary Fund bailout.

The make-up of the new government is likely to be a key focus at this week's Group of 20 summit in Mexico, when President Hu Jintao is expected to unveil China's proposals for rescuing the debt-laden euro zone.

Despite reassurances from European Union officials that the single currency will remain intact, political leaders have failed to agree on their own financial and fiscal responsibilities.

Fears of a so-called "Grexit" have surged in recent days, prompting a rise in bank withdrawals and capital flight and even hoarding of food in Greece.

Zhang Xiaoqiang, a vice-chairman of the National Development and Reform Commission - China's state planning agency - said Greece would stay put. But he said that solving the euro zone's problems was "a huge challenge" and the sovereign debt crisis had rippled across the world, exacerbating a slowdown in China's economic growth.

"The Greek election is a relatively small turning point," Zhang said. "Even if it withdraws from the trade bloc, the euro zone won't collapse. The biggest worry is the health of Spain's banking sector, which is bigger than that of Greece and is in trouble."

That problem was meant to be solved by a €100 billion (HK$980 billion) bank bailout package announced on June 9 - details will be settled after an audit of Spain's banks - but failed to soothe market nerves. On Thursday, yields on 10-year Spanish government bonds hit a euro-era record of 7 per cent - the level that triggered bailouts for Ireland, Portugal and Greece. The yield on Spain's benchmark 10-year bond stood at 6.874 per cent on Friday.

If a Greek euro exit had just half the impact on global growth that was seen after the 2008 global financial crisis, China's growth this year could fall to as low as 6.4 per cent, which would be the worst in 12 years.

Beijing is aiming for 7.5 per cent growth this year, while the World Bank is expecting 8.2 per cent. For the euro zone, HSBC economists expect it to contract 0.6 per cent this year.

Financial regulators on high alert

Hong Kong's financial regulators are already battening down the hatches.

Hong Kong Monetary Authority chief executive Norman Chan Tak-lam said contingency measures were in place if the euro-zone crisis continued to deteriorate.

He has warned the Exchange Fund's investment returns would be hit hard in the second quarter, largely because of global market volatility caused by the crisis.

"We are closely monitoring the sovereign debt crisis, and will adjust our currency and investment portfolio when needed," Chan said.

The investment income of the Exchange Fund, which is mandated to support the stability of the Hong Kong dollar, rose 76.6 per cent to HK$43.8 billion in the first quarter, powered by surging markets in Hong Kong and overseas.

The HKMA strengthens banks' reserve, capital and liquidity management and conducts stress tests on banks even though they do not hold any Greece sovereign bonds.

Hong Kong Exchanges and Clearing (SEHK: 0388, announcements, news) has raised margin requirements for Hang Seng Index futures.

The Securities and Futures Commission will soon require reporting of statutory short positions while carving out a regulatory framework for the over-the-counter derivatives market.

A government spokesman said chief executive-elect Leung Chun-ying would in August review the city's economic prospects against the backdrop of the euro-zone crisis.

Anthony Wu Ting-yuk, the chairman of policy think tank Bauhinia Foundation, said the biggest worry was that trade financing could dry up because Europe's banks needed to shore up their balance sheets and meet higher capital requirements at home.

He was also worried that European banks with substantial holdings in Greek bonds would be forced to write down their investments if Greece quits the euro zone and devalued its currency, prompting them to pull back from lending and trade financing, especially to companies in Hong Kong.

Weakened China trade and retailing

Some retailers and exporters, whose livelihood is closely tied to consumer demand and tourism in Europe, face a bleak future.

Yeung Chi-kong, executive vice-president of the Toys Manufacturers' Association of Hong Kong, said the Greek crisis had highlighted the urgent need for about 2,000 Hong Kong toymakers on the mainland to reinvest in innovation, technology and design.

Export orders had so far dropped 25 per cent from last year's combined sales of HK$150 billion for China, including Hong Kong, Yeung said.

"We are very passive because a Greek withdrawal from the bloc will depress the euro's value and consumer demand, and hence our export orders," he said. "This is a critical time for reinvestment in the future, or [the toymakers] risk being pushed out of the market."

Original equipment manufacturers, which make toys for brands they do not own, were most vulnerable to the consolidation, he said.

Yeung said European consumption would remain lacklustre for the next two years.

Torsten Stocker, a Hong Kong-based partner at management consulting firm Monitor Group, said: "The retail sector in China has undoubtedly been affected by the domestic slowdown and some of that can be linked to the crisis in Europe."

China's economy is slowing, with growth declining for the past five quarters. Following the same trend, retail sales growth slowed last month to 13.8 per cent - the weakest in 12 months - from 16.5 per cent in May last year.

Firms in acquisition mode

Some sectors stand to gain from the crisis, including the automotive and oil and petrochemicals industries, as they focus on merger and acquisition opportunities.

Liu Zhen, a special assistant to the president of Great Wall Motor - the first Chinese carmaker to open a production plant in the EU this year - said the crisis made Chinese brands more competitive.

"The crisis makes consumers more cautious about buying cars. They are turning from spending more for better quality to less for good quality," Liu said. "In terms of exploring the EU market with good products at lower prices, Chinese carmakers have more to gain than to lose."

However, given the crisis and a yuan-euro exchange rate at a new high, Europe is obviously not the priority destination for those looking to overseas markets. Bill Russo, a car industry consultant based in Shanghai, said China would rather focus on tapping high-growth markets such as Russia, the Middle East and Southeast Asia.

"The economic stress may provide some chances for Chinese carmakers to enter [the European market] in the entry-level, lower-price segments, but I think it's still in a very early stage," said Russo, a senior adviser at Booz & Co and president of Synergistics.

John Zeng, an analyst with LMC Automotive, said the debt crisis might actually help European carmakers lift market share in China.

"European carmakers now rely on the Chinese market more than ever. The weakening euro actually helps boost their competitiveness in China against their Japanese rivals," Zeng said.

However, neither Zeng nor Russo said the strong yuan and crisis would provide Chinese carmakers with bargains such as Geely's buyout of Swedish carmaker Volvo in 2010.

"The German government, for example, is very protective of its industry. It's not easy for a foreign investor to acquire crucial technology from a European carmaker even if they are under financial stress," Zeng said.

As the debt crisis hit Spain, Portugal and Italy, which have partially state-owned oil firms with substantial oil and gas assets, Chinese oil firms might be presented with opportunities to buy some of their assets, CLSA's head of regional oil and gas research Simon Powell said.

China Petrochemical Corp, the parent firm of the nation's largest oil refiner and petrochemicals producer, Sinopec (SEHK: 0386), agreed in November last year to buy a 30 per cent stake in the Brazilian unit of Portugal's largest energy firm, Galp Energia, for US$4.8 billion.

Property market to slump

Property analysts have also warned that a Greek exit from the euro zone would snuff out a nascent recovery in the Chinese property market.

"It will hit property market sentiment," said Eva Lee, the head of Hong Kong and mainland property research at UBS.

Centaline's chief executive for northern and southwest China, Dickson Wong Hung, said property sales and prices fell sharply in the 2008 global crisis. "When the economy's worsening, who wants to buy flats?" he said.

Unlike elsewhere, China's property market is largely led by government policies, rather than the market. Lee said the central government would loosen its tight controls to counter the impact of global turmoil.

"The crisis will hit Hong Kong directly, but the impact on mainland China will be cushioned," she said.

However, Alan Chiang Sheung-lai, the head of residential property at DTZ in mainland China, said he believed Beijing would be more cautious about relaxing austerity measures imposed to cool the property sector.

"Banks will tighten lending further because no one knows what will happen after Greek exits the euro zone," Chiang said. "Most people looking to buy a home will take a wait-and-see attitude."

Even if Beijing relaxes its measures, Wong said it would have a limited impact. "The financial crisis will hit the mainland economy. Even if the government relaxes its measures on the property market, it would only have a limited impact. It can't escape from the crisis," he said.

Denise Tsang, Enoch Yiu, Eric Ng, Anita Lam, Yvonne Liu, Celine Sun

Click here to read the article at scmp.com

China biomass tycoon leads deal to buy Saab

The Associated Press, June 14, 2012

BY ELAINE KURTENBACH

LAST UPDATED: JUNE 14TH, 2012 02:42 AM (PDT)

The Asian consortium planning to rescue Swedish automaker Saab Automobile from insolvency is led by a mainland Chinese alternative energy tycoon whose company has close ties with China's State Grid electricity utility.

Being linked to the acquisition of Saab's car making assets could help bring the huge, state-owned utility a step closer toward its long-sought goal of breaking into the electric vehicle market.

"It's logical if they want to move into that market," said Yale Zhang, managing director of the independent consultancy AutoForesight in Shanghai.

State Grid is the main driver behind installing the charging stations and other infrastructure required to support electric vehicles. It has experimented with electric buses but lacks automotive technology.

With a brand name, "If they want to build a higher-end EV, it would be easier to penetrate the European, American, even the Chinese market," said Zhang.

Kai Johan Jiang, the alternative energy tycoon, was born in rural eastern China, went to school in Sweden and once worked for Volvo Trucks, according to his company's website.

Most of his career has been in the energy sector. His company, National Bio-Energy Group, specializes in building and running power plants fueled by farm waste, such as straw and corn stalks. It has partnered in research on biomass energy with State Grid, whose logo is front-and-center on the Bio-Energy Group website.

National Bio-Energy Group also has cooperated with Sweden in biomass research.

Another of Jiang's companies, National Modern Energy Holdings, holds a 51 percent stake in National Electric Vehicle Sweden AB, the company set up to buy Saab's main assets. Sun Investment LLC, said to be a Japanese company, holds the remaining 49 percent.

Saab's buyers say they plan to meld Swedish car design and manufacturing know-how with Japanese electric vehicle technology to promote premium electric vehicles in China - a goal that has so far proven elusive.

Jiang and others did not disclose the price tag in announcing their purchase Wednesday of the Saab assets, which include the main parts of its auto manufacturing division.

"Chinese customers demand a premium electric vehicle, which we will be able to offer by acquiring Saab," Jiang told reporters at a news conference at Saab's manufacturing plant in Trollhattan, Sweden.

Perhaps, analysts say.

But buying a car factory will not guarantee success in actually making and selling premium electric vehicles, whether in China or elsewhere.

China's economic planners have made development of electric vehicles a top economic priority, driven both by the need to reduce smog and also to curb soaring dependence on imported crude oil.

But so far the market has failed to take off. Providing subsidies at the local level has only helped boost electric vehicle development in a couple of cities where local car manufacturers have relatively strong EV production, says Zhang.

Jiang and his partners have tapped a former executive of Volvo Trucks, Karl-Erling Trogen, to head their consortium, which says it is already hiring staff to begin product development.

Saab, which has more than 3,000 workers, filed for bankruptcy in December last year after its previous owner, the Dutch luxury car group Spyker - later named Swedish Automobile - failed to get sufficient backing for the brand.

Helping perhaps to minimize friction over intellectual property concerns, the carmaker's Saab Parts unit was not included in the agreement. IP rights for the Saab 9-5 car model, owned by the brand's former owner General Motors Corp., were also excluded.

Though Saab is not especially known for its prowess in electric vehicles, it will likely provide a platform for a prototype that State Grid could use to gain better cooperation with mainstream auto manufacturers, said Bill Russo, president of the consultancy Synergistics Ltd. Such companies have not been willing to take State Grid's lead in pushing ahead with new products.

"You wouldn't buy Saab for its EVs. It's about the ability of a power systems company to commercialize EV technology," Russo said.

"Will this lead to a high volume car business? Definitely not anytime soon," he said.

Read more here: http://www.thenewstribune.com/2012/06/14/v-printerfriendly/2180474/china-biomass-tycoon-leads-deal.html#storylink=cpy