Car Plate Lottery Creates Controversy

CCTV News Dialogue, September 1, 2012

Topic:  Car Plate Lottery Creates Controversy

Beijing started capping new car ownership at 20,000 a month through a lottery system in January last year. But the number of applicants reached 1.07 million this month in the capital city. Discontent is intensifying across China with speculation that more cities will follow Beijing and Guangzhou and limit the number of new cars on the streets as they try to tackle traffic gridlock.

Guests:

Bill Russo, Senior Advisor from Booz & Company

Xing Wenjun, Honorary Chief Editor from China automotive review  

Lincoln rolling into luxury market

China Daily, September 3, 2012

Ford's premium marque retooling for 2014 sales

While struggling to defend its territory from German and Japanese auto giants in its homemarket, US carmaker Ford Motor Corp's luxury brand Lincoln is looking for a bright spot inChina.

The carmaker announced last week in Beijing that it will export its Lincoln vehicles to China inthe last half of 2014. Dealer recruitment will begin in the fourth quarter this year, it said.

"With the reinvention of Lincoln going on in North America, we now feel the time is right," said Joe Hinrichs, president of Ford Asia Pacific and Africa at a media event in Beijing on August28, when the carmaker also showcased the Lincoln MKZ concept car.

Debuted at the Detroit Auto Show in January, the mid-sized four-door sedan with a bold wing-shaped grille and push-button transmission is expected to be the start of Lincoln's resurgenceafter years of sluggish sales.

Its mass-produced version will go on sale in the US soon, part of Lincoln's plan to introduceseven new and significantly retooled models before the end of 2014.

"During the last couple of years while our new products were being developed, we have been incorporating Chinese preferences and testing the vehicles with customers in China," Hinrichs said.

The company declined to specify what models it plans to bring to China, but noted that it will offer a powertrain that meets local demand such as the 2-liter EcoBoost engine.

Though Ford will focus on exports of Lincoln to China at the beginning, the company hasn't ruled out the possibility to local manufacturing.

Hinrichs said that if demand is strong enough, the company will consider local manufacturing.

Lincoln's current annual global sales total about 100,000 units, the majority of them in the US,with small number exported to the Middle East, South Korea and Mexico, according to JimFarley, Ford's vice-president for global marketing, sales and service.

'First major market'

"China will be our first major market for Lincoln outside the US," he said.

Last year China surpassed Germany to become the second-largest market for premium cars with delivery of about 980,000 units.

The number is likely to increase to 1.2 million this year, a 22 percent increase over 2011, well ahead of the growth in the mainstream market, according to LMC Automotive.

China is now the biggest overseas market for luxury carmakers Audi, BMW, Rolls Royce,Lamborghini, Bentley and among the top three markets for Jaguar Land Rover, Porsche,Mercedes-Benz and Ferrari.

And the long-term picture looks promising. Statistics provided by Ford show that China's luxury vehicle market will grow to about 2.7 million units by 2020, accounting for nearly 9 percent ofthe overall car market, up from about 6 percent today.

The significant size and stable growth in the next few years is the main reason that Forddecided to bring Lincoln to China, analysts said.

"Of course Lincoln should come to China," said Zhang Yu, director of industry consultancy Automotive Foresight (Shanghai) Co Ltd.

"The country may surpass the US to become the world's biggest luxury car market in five yearsand every luxury brand should certainly come here," Zhang said.

Bill Russo, senior advisor of Booz & Co, agreed, noting that "global brands of global companies like Ford need to be introduced to the largest automotive market in the world".

China is now the largest auto market globally in unit sales.

He said that having a premium brand on the market will also "help upgrade the image of Ford Motor Co in the eyes of the status-conscious Chinese consumers".

Fierce competition

Yet competition is getting increasingly fierce as the dominant top three German brands Audi, BMW and Mercedes-Benz have about 80 percent of the country's premium car segment andcontinue to aggressively expanding their local production capacities.

British luxury carmaker Jaguar Land Rover and Nissan's Infiniti have both announced plans to produce cars in China and will probably have their local plants ready by 2014, when Lincoln just joins the lineup in the crowded market.

Another US luxury brand, Cadillac from General Motors Co, previously only made the SLS in China, is moving to produce more new models locally at the end of the year as part of its plan to boost sales in the nation.

But analysts still believe the growing market itself will help offset the challenges posed by increasing competition.

Even with the planned expansion by global luxury carmakers, there is still an opportunity to carve out a niche due to continued growth in the number of affluent Chinese consumers, though it won't be easy, said Russo.

"Having the localized capabilities to adapt Lincoln branded vehicles to the local market will be a critical success factor," he said.

Zhang from Automotive Foresight is optimistic. "Lincoln has started to redesign its product lineup and its new vehicles seem to be in line with the aesthetics of Chinese customers."

"The brand also has long history and Chinese consumer love brands with heritage," Zhang said.

Click here to read the article at chinadaily.com.cn

Competing in China’s Slower Growth Automotive Industry

Auto.Sohu.com, September 1, 2012

Click here to read the Chinese version at auto.sohu.com
Click here to read the English version at auto.sohu.com

By Bill Russo （罗威）

China’s automotive industry has arrived at an inflection point.  After a period of breathtaking growth and expansion, the industry is now facing a future of slower growth at a level comparable to China’s GDP growth. 

This slower growth is a function of several inter-related drivers, including:

1. The central government’s desire for a more stable and sustainable pattern of macroeconomic development
2. Elimination of purchase incentives
3. New vehicle ownership restrictions in major cities

In the aftermath of the global financial crisis, China quickly responded by launching the Automotive Industry Stimulus Plan in early 2009. This plan included specific measures designed to spark the growth of consumer demand. Measures including the reduction of sales tax for cars below 1.6L engine displacement, along with subsidies for new minibus or light truck sales for rural residents resulted in a rapid market expansion particularly in China’s lower-tier cities, helping to boost the performance of the manufacturers of these smaller vehicles.

While aggressive tax cuts and subsidies sparked demand growth in 2009 (up 46% year-over-year) and 2010 (up 32%), these incentives were eliminated in 2011.  As a result the market growth slowed significantly to 2.5% in 2011.  Looking ahead, annual car sales are expected to maintain a growth rate comparable to the growth in China’s GDP, approximately 7%, between now and 2020. 

In December 2011, Beijing government released a new policy on “Beijing Traffic Relief Initiatives” and according to the policy; Beijing will issue only 240,000 new plates in 2011, 88% for individual usage, 10% for corporate usage, 2% for commercial usage. A lottery method is adopted for all plate allocation. Similar policies could also be seen in several other big cities such as Shanghai, Chengdu, and Guangzhou.  Other large cities such as Xian and Nanjing are likely to have similar policies in the near future.

STRUCTURAL IMPLICATIONS OF SLOWER GROWTH

It can be said that the global automobile industry has been burdened by overcapacity caused by overly ambitious expectations of market growth together with excessive optimism towards new products and technologies. The same can now be said for China, which is now the most hyper-competitive market in the world, with numerous foreign as well as domestic brands competing for the business.  In China, the top 20 manufacturers account for over 90% of sales.  With over 100 manufacturers in the auto business, many sub-scale companies face severe challenges and will struggle to survive in a market dominated by established companies. Moreover, greater than two-thirds of passenger vehicles sold in China carry a foreign brand, indicating that Chinese domestic brands will struggle to remain economically viable in a market where consumers prefer international brands.

Capacity additions that are currently planned will likely exceed the vehicle demand by as much as 35% by 2015.  As a result, manufacturers will begin to experience significant margin pressure and will be forced to raise incentives to sell-down their excess inventory.  As a result, the competitive dynamics in China may begin to resemble the mature markets, where companies experience large up and down swings in annual profits, severe price-based competition, and high emphasis is placed on operational efficiency to maintain profitability.

The pressures resulting from this overcapacity development may be the catalyst for the long-anticipated industry consolidation phase.  The existence of many weak sub-scale manufacturers is understood, and the China government had articulated a plan in 2009 to consolidate the industry into 2 distinct “tiers”:  the Tier 1 group consisting of companies with an annual capacity of 2 million units that are encouraged to acquire smaller automotive companies throughout China, whereas Tier 2 consists of companies with an annual capacity of 1 million units that are encouraged to drive regional consolidation. 

However, progress toward implementing this restructuring plan has been slow during a booming growth period where all companies were expanding.  As the market slows, it is now time to accelerate industry consolidation.  This will not be easy, as many companies will resist a top-down push to restructure.  Ultimately, market forces must determine the companies that have earned their right to survive this consolidation phase.

STRATEGIES BEYOND THE INFLECTION POINT

With slower growth prospects and a fragmented landscape of manufacturers, we may be tempted to become pessimistic about China’s automotive future.  However, we must remember this is still the largest and fastest growing auto market in the world, and companies that adjust their strategies to the new growth pattern will prosper.

First, demand will become more “binary” as lower tier cities develop and grow at rates higher than the higher tier cities.  There is enormous growth potential in the lower tier cities and provinces in China.  While the wave of car buying has swept over China’s tier 1 and 2 cities, over 80% of the population lives in tier 3 and lower cities.  Compared to the higher tier cities that are confronted with the problem of market saturation as noted before, the lower tier cities have greater potential for growing demand, and consumption of automobiles in the future. Moreover, this process will be further promoted, as the Chinese government places a focus on boosting the economic development of these regions. 

Some companies have started to seize the opportunity. For example, GM’s mini-vehicle China JV (SAIC-GM-Wuling) introduced the first own-brand car (Baojun, meaning treasured horse) to target the fast-growing lower tier consumer, aiming to combine world-class quality & low ownership costs.  By becoming a pioneer in moving down the to compete in the low end market, GM-SAIC-Wuling aim to capture the shift in the growth pattern toward lower-tier cities and provinces.

Second, shifting demographics and consumer preferences can generate profit opportunities.  While growth may have slowed in certain segments, there remain tremendous and profitable growth opportunities in smaller emerging growth segments. Companies need to have good strategies to fully cater to an increasingly diverse set of customer needs.  For example, compact SUV sales grew at an annualized rate higher than 40% in 2011, and sales of premium cars remain strong resulting from the expansion of China’s upper middle-class population.

Third, companies must grow their localized capabilities in the areas that help create competitive advantage.   That involves building a deeper understanding what makes their brand competitive in China, and localizing the human resource capacity in areas such as research and development, and network development.  In an era where efficiency becomes more critical, it is especially important for companies to fully localize the volume products sold in the China market.  For example, Hyundai has achieved nearly 100% local content for Elantra, and likewise Volkswagen has achieved the same for the Lavida.  The ability to deliver highly localized cars suitable to the local market needs is a capability that will increasingly depend on localized talent.

Finally, growing profits does not simply mean selling more new cars.  With the growth of the auto market in recent years, the demand for after-sales service, maintenance, and used car sales is growing as well. In response to the slowdown, manufacturers and dealers must recapture growth by building capability across a variety of after sales services, including establishment of a sub-dealership network and heavier involvement into service delivery and innovation.

CONCLUSION

The China auto market has passed an inflection point, downshifting from double-digit annual growth to a slower and more sustainable pattern in-line with GDP growth.  In the future, we can expect to see even more intense competition among the foreign and domestic brand vehicle manufacturers as they attempt to adjust to this new pattern while maintaining profitability.  Surviving the inevitable consolidation will require automakers to adjust their strategies to this new growth pattern.

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

Bill Russo, is the President and CEO of Synergistics Limited, and a Senior Advisor with Booz and Company. He lives in Beijing and has more than 25 years of experience in the automotive industry, most recently serving as Vice President of Chrysler's business in North East Asia.

Bill Russo to Chair Day One of Green Mobility 2012 Conference

Beijing, September 13-14, 2012

Click here to view the event website

The China’s New Energy Vehicle Program is expected to be strategically achieving the better future: global climate change; energy security; urban air quality; and China’s auto industry growth. In 2009, the Chinese government initiated the Ten Cities, Thousand Vehicles Program to stimulate electric vehicle development through large-scale pilots in ten cities, focusing on deployment of electric vehicles for government fleet applications. The Program has since been expanded to 25 cities and includes consumer incentives in five cities. Significant electric vehicle (EV) technology development in China is occurring in industry as well as universities, focusing primarily on batteries and charging technology. The new EV value chain is beginning to develop new businesses and business models to provide the infrastructure, component, vehicle, and related services necessary to enable an EV ecosystem.

So far the program has not achieved its initial expectation; the market is still in a vague situation. According to World Bank’s 2011 report, there are several challenges China is facing right now: except introducing the purchase subsidies, the government has to stimulate demand for EV. As private EV cars will be fully involved eventually, integrated battery charging solutions need to be developed. It is emergent to launch a full set of standards include vehicle charging and safety & power grid standards. In the mean time significant efforts underway elsewhere have put many electric vehicles on the road around the world.

Based on the huge success of last two annual Green Mobility events, the Green Mobility 2012 aims to discover the challenges and opportunities for the China EV industry and also provide participants with cutting edge insights on relevant technology, economic, societal, trade developments impacting on the industry. Green Mobility 2012 will bring business leaders from the automotive sector from China and Worldwide, along with government officials and senior executives from sectors closely associated with the world industry. 

Agenda at a Glance

	Day One, 13th Sep	Day Two, 14th Sep
AM	Policy & Latest Development Plan of  New Energy Vehicle	Emerging Ingustry Trends & Technology Innovation
PM	Commercialization And Marketlisation Roadmap	Battery Management & Development

3rd Annual Green Mobility 2012 from Synergistics Limited

Bill Russo's Opening Remarks:

Towards a Green Automotive Industry from Synergistics Limited

福特宣布林肯品牌将进入中国

China Daily, August 28, 2012

[提要]  北京时间8月28日下午消息，据彭博报道，在华销量落后于通用和大众的福特将推出豪华汽车品牌林肯，以作为该公司半个世纪来最大扩张计划的部分内容。福特今日公布声明称，该豪华汽车品牌将于2014年下半年登陆中国，公司将于今年第四季度为该品牌汽车招募经销商。

北京时间8月28日下午消息，据彭博报道，在华销量落后于通用和大众的福特将推出豪华汽车品牌林肯，以作为该公司半个世纪来最大扩张计划的部分内容。

福特今日公布声明称，该豪华汽车品牌将于2014年下半年登陆中国，公司将于今年第四季度为该品牌汽车招募经销商。

福特继通用后加大在中国豪华车市场的竞争力度，研究机构IHS预测该市场规模将在这个十年末前翻倍并超过美国。大众的奥迪、戴姆勒集团( Daimler AG)的奔驰和宝马集团(Bayerische Motoren Werke AG,BMW)的宝马目前处于主导地位，它们占到中国高端汽车销量的四分之三强。

Booz& Co驻北京高级顾问Bill Russo称：“将豪华品牌引入中国是一个大胆的决定，但也是一个必要的决定。如果你是一家品牌遍布全球的世界性公司，你必须在中国推出全球性品牌。

Click here to read the article at china daily.com.cn

Ford eyes China's wealthy drivers with coastal plant

Reuters,  August 29, 2012

By Deepa Seetharaman

HANGZHOU, China | Wed Aug 29, 2012 3:50pm IST

(Reuters) - Ford Motor Co (F.N) and its Chinese partner will begin building its first factory on China's coast, where the U.S. automaker can easily access the country's growing number of affluent buyers.

The $760 million factory is one of five Ford is building to cement its place in the world's largest auto market. Ford is also building a third assembly plant at its manufacturing hub in the central Chinese city of Chongqing.

Building vehicles in Hangzhou - a city of more than 6 million people to the south of Shanghai - draws Ford closer to China's wealthier population along the coast. It also provides Ford with an accessible port so it can export vehicles in the future, although Ford said it is now focused on building cars for the Chinese market.

"Hangzhou is really critical because of the market that it serves, and it diversifies our operations," Chief Executive Alan Mulally said after a groundbreaking event in Hangzhou on Wednesday. "The customer base here is fantastic."

Since 2006, Ford has poured nearly $5 billion into China with the aim of doubling capacity, employees and dealers by 2015. The plant in Hangzhou will be able to build 250,000 vehicles when it opens in three years.

GRAPHIC: Ford in China r.reuters.com/gek32t

LINCOLN LUXURY

Ford is the latest in a long list of automakers vying to launch or expand top-tier brands in China, where luxury car sales are expected to surpass those in the United States within 8 years. It plans to bring its Lincoln brand to China by 2014.

At an event at a converted Buddhist temple in Beijing on Tuesday, Ford executives said Lincoln could win over buyers partly by drawing on its legacy of building iconic cars like the Zephyr and Continental. But they also said China represented a rare chance for Lincoln to reinvent itself and skirt past its stale image, which has hurt sales in the United States.

"We have a chance to be different here," Ford's global marketing chief Jim Farley said. "We see the opportunity in China for the first time to launch Lincoln from scratch. China could teach us things we could incorporate into the experience side in North America."

By offering a premium car with Lincoln, Ford could be more attractive to dealers, helping the company gain traction in the Chinese market, Booz & Co consultant Bill Russo said.

LOW-COST APPEAL, TOO

The U.S. automaker is also launching 15 Ford brand models to China by 2015. One of those will be a low-cost car to appeal to buyers in China's fast-growing cities in the West. That model will rival the Chevrolet Sail, a car developed by General Motors (GM.N) and its Chinese partners that sells for less than $10,000.

Earlier this week, Mulally and other top executives marked another groundbreaking of the automaker's third assembly plant in Chongqing, home to Ford's massive manufacturing hub.

The complex is close to China's rapidly developing inland cities, where Ford is looking to win buyers with low-cost models.

Ford chose to build a factory along China's east coast after deciding to break up its three-way tie-up with Japan's Mazda Motor Corp (7261.T) and China's Changan Automobile Co Ltd.

China approved that restructuring, which carves up the joint venture assets between Mazda and Ford, earlier this week and it is now being reviewed by Chinese regulators. Mazda was not involved in selecting a site for the factory.

"This was a Changan Ford decision and a Changan Ford process," Joe Hinrichs, Ford's head of Asian and African operations, told Reuters.

Click here to read the article at reuters.com

Ford to keep expanding in China with addition of luxury Lincolns

The Los Angeles Times, August 28, 2012

Click here to read the article at latimes.com

By David Pierson

BEIJING -- Ford Motor Co. continued its China blitz Tuesday, announcing that it would join the country's increasingly competitive luxury-car segment by introducing Lincoln automobiles to the Chinese market by 2014.

The announcement comes a day after Ford broke ground on its sixth factory in China, a $600-million plant in the southwestern city of Chongqing, and revealed that it had won initial regulatory approval to free itself from a local joint venture to manufacture cars with Mazda.

The developments allow the Dearborn, Mich., automaker to ramp up its ambitious expansion plans in China in an all-out effort to catch up with its far more popular foreign rivals, Volkswagen and General Motors Co.

"Lincoln is an important part of our plan, and introducing Lincoln in China marks the next step in our expansion in Asia and our commitment to serving customers in the luxury market," said Ford CEO Alan Mulally, who is touring China.

Ford is a latecomer to China but has committed about $5 billion since 2006 to build factories, grow its vehicle lineup and expand its dealership network in the world's second-largest economy.

Ford now sells an array of compact vehicles, sedans, SUVs and vans in China. Sales hit just over half a million units last year. Passenger vehicle sales have grown 7% this year, according to LMC Automotive, about 2% below the industry-wide rate of expansion.

With the introduction of Lincoln, the company hopes to tap a consumer segment that has been wildly successful for Audi, BMW and Mercedes-Benz. The three German automakers combine for almost 80% of the luxury-car market.

Unlike those brands, which manufacture in China, Ford will import the still-to-be-released Lincolns when they're officially launched here in the second half of 2014. A new Lincoln MKZ sedan is to be launched in the U.S. this year, part of a revitalization plan to introduce several new vehicles to the brand's lineup.

Ford said it's considering the needs of Chinese consumers in designing the new Lincoln vehicles. The company consulted luxury fashion labels Prada and Burberry because of their experience with China'srich. Spacious rear seats were deemed a must as luxury-car owners in China tend to be chauffeured. The company is also betting Lincoln's nearly 100-year-old history (one that includes many presidential limousines) will resonate in a country that prizes heritage brands.

"We have a chance to be different here," said Jim Farley, Ford's head of global marketing, "different from the Germans, the Asian brands, the other American brands, Cadillac. It’s a perfect time for Lincoln to come here because our DNA is different from all the other choices customers have."

Ford estimates that luxury-car sales in China will more than double to 2.7 million units by 2020, surpassing the U.S. as the world's top market. As a whole, China posted auto sales of 18.5 million last year, compared with 12.8 million in the U.S.

The strength of Chinese luxury auto sales today belies an industry-wide slowdown triggered by over-capacity, China's weakening economic growth and stricter car-ownership restrictions in some of the country's most congested cities, such as Beijing.

"The issue of over-capacity has really not affected the high end of the pyramid," said Bill Russo, president of the Synergistics auto consultancy in Beijing and Chrysler's former chief in China.

Still, Russo warned that Lincoln would have to find a way to stand out and justify its potentially hefty price tag with engineering performance and interior features.

"The degree of difficulty will be high," Russo said. "You have a very established set of competitors in a market with Chinese consumers who already equate luxury with a certain portfolio. Getting them to recognize Lincoln is going to be the main challenge."

Michael Dunne, the Indonesia-based head of auto consulting firm Dunne & Co., said Lincoln may benefit from being a new market entrant, especially at a time when Chinese car buyers may be looking for their second set of wheels.

"The Chinese like differentiation, something fresh and new," Dunne said. "Land Rover has done well in the SUV segment by essentially just being different. Mainly it's image. Someone might say, 'You have an Audi? Half my friends already have an Audi. I have a Lincoln now.'"