The chances of the Chiense government introducing new policies to stimulate the auto market in 2012 are relatively small at this stage, traditionally new policies would be introduced in late November and enacted on January 1^st of the new year or following the Chinese new year, until now no new policies have been introduced.

The Ministry of Information and Resources Director Mr. Xu Zhang Ming believes that second and third tier cities will be major growth opportunities and in 2012, although major growth in this sectors could be ruled out owing to the quality and condition of the roads. Mr. Xu was speaking at the recent 2012 China Automotive Research Summit in Beijing where he announced that he believes the Chinese market will see 10% growth in 2012 in certain areas, highlighting MPV and SUV segments as potential areas for growth.

In fact Clarkson and May were overly supportive of Chinese cars, despite their horrendous pronunciation of some of their names (hint: The Qi in Hong Qi is the same Qi as in Tai Chi), in his own words Clarkson commented that Chinese cars had come a long way in a short time and are likely to gain on improvements in the coming years. Top Gear were quite nice to cloned cars such as the BYD F0 and the S-CEO, just a light mocking rather than a complete ripping that we were expecting. Watch Top Gear China Special on Youku here, the fun starts from the 40 minute inwards mark

The sales figure includes Dongfeng and Zhengzhou joint ventures and also Nissan’s Infiniti business. The Dongfeng-Nissan joint venture reportedly hit a new record with strong growth seen across the JV’s product line.

According to Chinese reports the C-Quattre has been given another name change for 2012, the new name will be ‘New C-Quattre’. Actual changes to the car are few, a more defined grill, LED lights and an updated interior have been introduced. Whilst Europe gets to grips with a next generation of C4, it seems China will have to make do with a facelift for a few more years, but with last years C-Quattre sales reaching 120,000 units it’s unlikely that Dongfeng-Citroen will be in a rush to change a winning recipe. The new C-Quattre will likely launch in March 2012.

The FRV’s new face is likely to continue being a popular car in 2012 and beyond both in the Chinese market and in overseas markets where Brilliance are represented.

At that time, Hong Qi cars were designed for the government but Shanghai branded vehicles were apparently China’s answer to the people’s brand.  So why have SAIC suddenly planned to revive the brand after such a long hiatus? A new policy issued by central government has mandated that government cars for mid level officials should be capped 180,000rmb and be of 1.8L or smaller displacement, previously it was 2.0L and 250,000rmb which gave officials a massive amount of leeway in buying their own cars, the new policy is expected to see more Chinese branded cars being purchased by government officials.  By reintroducing ‘national’ brands such as Shanghai, Beijing, and Hong Qi, Chinese manufacturers hope to win a greater share of sales from Chinese government fleets at all levels.

The first Shanghai branded vehicle is expected to be the R95 which was seen several days ago, in addition Beijing Auto’s first Beijing sedan will launch at the Beijing Auto Show in April this year and the Hong Qi C301 will launch at the same time.

The CD101 is the first mid size sedan from the company, test vehicles have been spotted out testing in the Sichuan area with suitable amounts of dirt attached to them, presumably hitting some rural roads on their test roads. Chinese media were overly quick to say that the CD101 is a mish mash of existing cars, according to autohome.com.cn the front of the CD101 is overly 8^th generation Honda Accord and the rear is on par with the last generation Toyota Camry, although to us it seems these are overly stretched examples. However the exterior looks, the interior looks to be world class and on par with the Japanese models it apparently aspires to be.

Power has not yet been announced, but we can bet that it will be something in the 2.0L and above range.

China has just entered the year of the Dragon, a powerful symbol of power and strength, also the number 8  is an auspicious number in China representing luck, thus 88 is doubly lucky. The Dragon88 will be officially unveiled in April this year at the Beijing Auto Show and will be a focal part of the company’s sales plan in 2012, however only 88 Dragon editions will be made available for the Chinese market this year.  The Dragon88 edition will be made available on the DBS, Virage, V8 Vantage S models  

Three exterior colors have been chosen to represent rich and vibrant Chinese art and history, interior colors will feature bright metal work and piano black trim. Consumers will be able to choose from a pallete of three interior colors for their Dragon88 models, Amethyst Red which represents wealth, peace and protection, Volcano red which has been chosen to represent the dragon’s fire, Champagne Gold has also been selected to represent the dragons status and prestige along with wealth and fortune.

The  most  striking  interior  feature  is  the  headrest  embroidery  design,  inspired  by Beijing’s famous Nine-Dragon Wall in Beihai Park. Built in 1756, it is one of just three of these famous decorative screen walls erected at Palaces and Gardens during the Qing Dynasty. The headrest design is based on the left-most dragon on the Beihai wall, its sinuous form rendered using four thread colours – Metallic Gold, Cream Truffle, Winter Wheat and Kestrel Tan.

Bang and Olfsen speaker and headphone system have been installed in Dragon88 editions for when the driver owner doesn’t want to listen to the rip roar of an Aston Martin engine. A new 10 spoke alloy have been designed for the Dragon88 with a special silver finish, behind each alloy wheel black brake calipers have been installed as standard.

Aston Martin currently has 7 dealerships in the Chinese market, although with 2011 sales expanding at a rapid pace the British company is expected to advance aggressively within the Chinese market in 2012. Bentley’s own Dragon edition car was sold out before the cars even made it to the market, which indicates that there is still a strong demand for super luxury cars in the Chinese market even though the economy is going through a cooling down period.

Exports: A Possible Solution

Chinese brands struggled at home in 2011, losing market share to foreign brands. The outlook is rather bleak, so the answer to some is to expand outward. They have been slowly making inroads into new markets everywhere in the world. It goes without saying that the most important foreign market would be the United States. But arguably the next one in line is Brazil.

China and the U.S. are the two largest car markets in the world, by a wide margin. The third one is Japan, which is notoriously closed to imports. Hyundai and Kia, which expanded rapidly around the globe in recent years pulled out of Japan in 2009 after eight sluggish years. Last year, the share of foreign brands rose to the highest in recorded history: 7.7%. Combined with an aging and shrinking population, it’s probably not worth the effort.

Why Brazil?

Brazil is the world’s fourth largest market, having recently just surpassed Germany. More than 3.4 million cars and light commercial vehicles were sold in the South American country last year. A growing population, rising economy and a relatively low motorization rate (333 cars per 1000 inhabitants) make theirs a very promising market. Analysts predict Brazil will overtake Japan in 2016 and become the third largest market.

Size is not the only factor. Car prices in Brazil are notoriously high. Take the world’s most popular car, the ubiquitous Toyota Corolla. In Brazil, it is sold from 64,000 to 90,000 Brazilian reals, which are equivalent $37,230 to $52,360 USD. The Corolla’s MSRP in the US is $16,130 (base). Not to mention 6 airbags, ABS+EBD, ESC, cruise control are all standard in the US version. Some of these are missing even from the $52k Brazilian version.

The Chinese are still competing on price, but that’s easier to pull off when prices are sky-high. So they too, are selling cars at more than twice their suggested retail price in China. Here’s a price comparison between with prices of the four most popular Chinese models sold in Brazil:

With profit margins razor thin at home, JAC and Chery must be enjoying their success. Other Chinese automakers have probably noticed this as well, and are all eager to enter this highly promising and profitable market. Stay tuned for a history of Chinese brands in Brazil, plus some sales figures.

The 750 rides on the Epsilon II platform which is also underpinning the Buick Regal and Buick Lacrosse and comes courtesy of GM, SAIC’s partner in crime in the Chinese market. However, the new 750 wont be called the 750, its name will be changed to the R95 which tells us two things: Either the new 750 is not actually the new 750 at all and will sit above the 750, or the old 750 will continue production whilst the newer R95 is introduced, the older version appealing to government fleet buyers. We’ve also learned this car will be sold under the resurrected Shanghai brand which SAIC plans to bring back after a twenty year hiatus from Chinese roads.

Engine power will come in three forms: 2.0L, 2.4L and of course 3.0L V6, no turbo units as of yet but we expect that will change down the line.

The first concept car is expected to be unveiled at the Beijing Auto Show where it has been called the GOLF, golf of course standing for Green, Oxygen, Light, and Friendship. The GOLF concept was designed and developed by Daimler-BYD in a 50:50 joint venture which has total investment of 6 billion RMB. As a pure EV brand the Daimler-BYD cars will be up against BMW’s i3 and i5 range of cars when they finally launch.

The initial concept versions that leaked to the internet indicated that the GOLF would come with a slight hint of Mercedes B200 and also a dashing of BMW 5-series GT around the rear, however neither of these attributes can be seen in the above road testing vehicle. We don’t know too much about their first car, although the Beijing Auto Show will play host to the brand unveiling, we’ve since learned that the new car will carry a tear drop or rain drop like logo when officially launched.

From Reuters:

Chinese group Zhejiang Youngman Lotus Automobile has made a fresh bid for Swedish carmaker Saab, which went bust in December, Swedish radio reported on Thursday, citing sources.

Saab, one of Sweden’s best-known brands, shut down production early last year after running out of money and was finally declared bankrupt after protracted rescue efforts by owner Swedish Automobile.

The public broadcaster said Youngman’s offer was worth several billion Swedish crowns, and the Chinese firm, which had wanted to invest in Saab before the bankruptcy, would under the new proposed deal produce cars at Saab’s factory in Trollhattan in the southwest of Sweden.

Saab’s receivers declined to comment on the report. A Youngman representant was not immediately available for comment.

A key stumbling block that led to Saab’s bankruptcy was the refusal of its former owner General Motors to allow its technology, which underpins Saab cars, to fall into Youngman’s hands.

The 4R3 was once again spotted, this time in the car park of an unnamed factory being looked over by employees. JAC Employees? Who knows. All we can see is that the front of this 4R3 is overly similar to the Ford F150, see the L-shaped headlights, hood creases and to the rear you can see more F150 design tones. Internally however, the 4R3 is a little different to the F150, instead of a turbo charged V6 four cylinder 1.8T gasoline and 2.8L Isuzu derived diesel engines will be used.

Pictures from Playerschina.com

Information leaked to the Chinese automotive press indicate that BYD will be attaching their new self developed dual clutch technology to the S6 in the early parts of 2012. The DCT will be paired to both the 2.0L and 2.4L offerings, the 2.0L engine is BYD’s own design whilst the larger 2.4L is a Mitsubishi donor model.

Pricing is expected to be still relatively low despite the advanced gearbox technology, pricing could potentially be from 120,000rmb and rising which is a steal considering the size of the S6.

Bayerische Motoren Werke AG (BMW)’s Rolls- Royce sold out a $1.2 million Year of the Dragon Phantom model introduced to lure buyers in its biggest market of China, where the company predicts growth will be less “explosive” in 2012.

Chinese customers want highly bespoke cars with features such as drink cabinets and embroidery, Rolls-Royce Motor Cars Chief Executive Officer Torsten Mueller-Oetvoes said today. To meet demand, the company will add dealerships in mainland China’s so-called second-tier cities, adding to the 14 it has in Greater China including Hong Kong, the city with the highest density of Rolls-Royce drivers in that region, he said.

Buyers in China want “marvelous embroidery work, so for that reason we’ve created a Year of the Dragon special edition for the Phantom,” Mueller-Oetvoes said in a Bloomberg Television interview in Hong Kong. “It is red, of course, also as being the color of luck.”

Rolls-Royce is catering to a market that has become the biggest for automakers from Bentley Motors Ltd. to General Motors Co. and where the number of millionaire households has surged by almost a third. The London-based maker of luxury cars faces the prospect of slower demand in China as growth may ease in the world’s second-largest economy this year.

Rolls-Royce began taking orders for the Dragon-year Phantom in August and sold out the model within two months, said Hal Serudin, a Singapore-based company spokesman, who declined to provide sales figures. Prices for the special model start at 7.4 million yuan ($1.2 million), he said.
Hand-Painted Dragons

Features of the special-edition Phantom include a gold dragon hand-painted on the side of each wheelbase, the mythical creature embroidered on headrests, and hand-stitched cushions for rear passengers.

Rolls-Royce will add fewer than 10 dealers in Greater China this year, Serudin said. The carmaker currently has 14 dealerships in Greater China, which includes mainland China, Hong Kong and Taiwan.

“I’m optimistic that we will see growth in the Greater Chinese market,” Mueller-Oetvoes said. “It might not be as explosive as it was a couple of years before, but I’m very confident.”

The number of millionaire households in China jumped 31 percent in 2010 to 1.11 million, ranking it third behind the U.S. And Japan, according to a Boston Consulting Group survey released last year.

Growth at Rolls-Royce may ease in tandem with a slowing economic outlook for China. The nation’s economy may expand 8.5 percent this year, receding from an estimated 9.2 percent in 2011, according to the median estimate of economists in a Bloomberg News survey.

The CRZ is undergoing testing in the sunny climes of Guangdong province and is expected to be imported into China later this year. As the Lexus CT200H is currently flying out of dealerships it seems that there is a demand for luxury hybrids but a lack of demand for slightly off looking ones such as the Prius (2010 sales were just 400 units), the CRZ will have to be priced at somewhere between the 150,000RMB to 250,000RMB if it is to take on other three door models such as the recently introduced Hyundai Veloster.

An anonymous source was quoted by Yi Cai saying that FAW’s flagship luxury models had become the defacto cars for ministers, as a result FAW shares lurched forward 1.9% to 9.14rmb per share on the Shenzhen stock exchange before retreating to 9.02RMB.

Hong Qi’s forthcoming C131 is being called an ‘Audi Killer’ by the Chinese press, although it is likely that this model is either based on an Audi or Toyota platform, Hong Qi cars have used both platforms previously.

Should Hong Qi become the ministerial car of choice once again, sales at Audi are likely to be impacted slightly but Audi have long been proactive in widening their consumer base away from the traditional government fleet, this seems like a storm Audi are able to weather very well.

See our stories on the C131′s development below:

Under the hood a 1.5L that’s good for 109bhp is on hand whilst cog swapping duties have been assigned to a 4speed auto and 5 speed manual gearbox. The MG5 seems to be ‘enough’ for Chinese car consumers, but MG fans elsewhere might be wanting a bigger more powerful engine, news and rumor have long circulated that the MG5 will be a 1.5T so perhaps it would be better to wait until the turbo unit is on the market before buying.

Pricing is expected to follow the Roewe 350 methodology, which is somewhere from just over 80,000rmb to 120,000rmb.

Suzuki are aiming to push the Vitari’s into production in China over the course of 2012 according to media reports, with the cars being built locally Suzuki will be able to lower the costs considerably and pass on savings to end consumers.

Inspired design aside, the B301 looks like a seriously nice small car, the interior seems to have also been inspired by their German partners own offerings. Chinese manufacturers always seem to make impressive looking cars on the outside but with interiors that were manufactured by the lowest possible bidder. The B301 measures in at LxWxH 3998mm x 1720 x 1503. Pricing has not yet been announced but we can expect it to be as low as 70,000RMB and rising to highs of 120,000rmb for the top of the range automatic gearbox models, launch date has been set for mid March 2011.

Other Daimler inspired vehicles at BAIC would also include the recent G-Wagon that the company somehow managed to dream up, BAIC also built their own version of the classic Jeep Cherokee until Chrysler turned it over to them, the Cherokee is still in production as the ‘Qi Shi’

The third gen model will come as a hybrid only for the Chinese market, meaning that the plug in parts have been removed but the 1.8L Atkinson cycle engine remains the same as before. The Lexus CT200H was recently launched in China and has already gained strong sales in the Chinese market, with a change of mind towards hybrids perhaps the Prius will be finally able to take off in China. Pricing is expected to be from 200,000rmb and rising.

The APX based SUV has been spotted out numerous times either via patent leaks or real world testing, but this is the first time we’ve been able to get a proper look at the forthcoming beast. The APX was set to be a Cayenne fighter with a V6 Turbo engine, but the Youngman version will be a little more sedate with the choice of 1.8L to 2.4L engines according to Chinese media press guesses.

From certain angles these leaked pictures show that the Youngman APX is a unique looking beast, although it does have some influences from certain other vehicles, a hint of Ford Edge around the front, some Cadillac SRX in the side but overall – it looks great.Pricing is expected to be from 120,000rmb and rising when launched, although we could bet a a guess and say it could potentially be from 150,000rmb and up.

Mulroney came out to explain that Canadian ministers are limited to just $32,400 for their car, presuming this is Canadian dollars this roughly translates into just over 200,000RMB via Google. So how much does a Camry Hybrid cost in China? Prices of the last generation model were over 300,000RMB which is clearly well over the 200k limit imposed by the Canadian government, so perhaps the Camry in question was brought over from Canada. Either way, Ambassador Mulroney should be a template from which Chinese government officials can learn from. As mentioned earlier, Chinese netizens were in shock to learn that an Ambassador would drive a mere Camry, one netizen commented: “Shit, even in my village the leaders have VW Passat’s“

Next Generation BYD F3 Su Rui

BYD’s rise to fame came on the back of the original F3, the F3 got Chinese consumers onto the roads in a major way in 2010 and became a ‘peoples car’ so to say. BYD’s policy of trying to make everything in house, from glass to dashboards to carpet became the unsticking point of the F3, in a rush to make as many as possible build quality suffered, complaints rose and sales sunk. Now the F3 is back as the Su Rui and seems to be a world away from the original F3.

According to media reports the Su Rui has been completely redeveloped from the ground up, including new engines, a vastly improved platform and of course the new design style that is slowly propagating its way through the BYD line up. The F3 is likely to change BYD’s fortunes when it is finally revealed and launched at the Beijing Auto Show in April this year. According to reports the F3 Su Rui is likely to make the most of a new 1.5T engine and also dual clutch gearboxes both of which were designed in house, the cars interior has also been given a make over. Spec sheets indicate that features such as reversing sensors will come as standard, although GPS/DVD systems will be optional extras.

BYD’s new design them has moved on from the blandness of yesteryear and give the company a new edge that wouldn’t make the F3 and F6 look out of place in Europe or North American roads.

The global OEMs and their Chinese JVs are selling pretty much everything that they can build or ship in. For example, Porsche expects to be up 62% this year, primarily as a result of removing a supply constraint for the Cayenne. But some of the domestic Chinese OEMs are seeing absolute volume falls and their share of the market has declined materially over the past decade.  What has gone, or is, wrong? How can this have happened in a control economy that is so regulated?

It is instructive to look back at how the Chinese car market has developed and how it has influenced the global OEMs. It’s very much a case of a number of highly-distinct phases, although in this review I will be deliberately vague about the timing of each phase, since the line is blurred by different companies developing at different speeds.

The lost years

It wasn’t so very long ago, up to the mid-80s, that the Chinese car market was less than 10,000 units and unless you were a very senior government official or a foreigner, the chances of securing a car were very thin indeed.  China had, to all intents and purposes, lost touch with the skills of mass manufacture, never mind about how to develop modern cars.  The demand simply wasn’t there – or, more pertinently, wasn’t allowed.  The products were stuck in the 50s. The market was at least consolidated with FAW making the Hongqi, Shanghai Auto the eponymous Shanghai and then a few truck makers such as Dong Feng, Chang’An, Chongqing etc.

The early years

In 1986, the auto industry was chosen as a pillar industry and accorded special status.  Multi-year plans were published, known as the 5-year plans (although they were rather longer-term in fact). Foreign OEMs were allowed, and encouraged, to form 50-50 joint ventures with domestic OEMs; although they were slow to get going.  Initially, the only significant ones were Jeep, FIAT and VW.  At the same time, globally, the dominant trend was offshoring.  While entire vehicle manufacture didn’t move to China, many of the component makers started offshoring to China, India, Thailand etc to take advantage of materially-lower labour rates and this (and other factors such as the Japanese OEMs) in turn led to globalisation of components, platforms etc.  In one of those wonderful unplanned consequences, it made the international OEMs more competitive and kicked off an era of cost downs.

Early growth

As the Chinese market took off, in the early 90s, so did the JVs. Capacity expansion was promoted and domestic brand development encouraged.  Everybody, both Chinese and global OEMs, wanted to join in:  GM, Nissan, Ford, Audi, BMW, Toyota, Honda etc all came to China and formed JVs.  This drove further consolidation in the West to an extent, although more within OEMs than between them.  In the meantime, a plethora of private manufacturers had appeared and, without wishing to be indelicate, some of them simply copied foreign cars.

The WTO years

At the end of the decade, China applied to join the WTO, introduced a range of more liberal policies and growth exploded. As the next 5-year plan came out, regulations tightened a little bit, the pressure to share technology grew, China moved towards owning intellectual property (“IP”) and the extent of the JVs deepened.  The million-car platform became the order of the day and if you didn’t have significant Chinese volume, life was tough.  Towards the end of this phase, there were Chinese OEMs that were very significant in scale; extremely competent at making cars but, and it’s a big but, making other OEMs products.  In this phase, we saw the first overseas acquisitions of foreign OEMs by Chinese OEMs:  Shanghai / Rover MG; BAIC / Saab assets; and Geely’s astonishing acquisition of Volvo from Ford.

Premiumisation

Revolting word, but it captures the theme.  All of a sudden, China was a 10m unit market and went from wanting mobility to wanting brands.  BMW, Mercedes, Audi, Jaguar Land Rover simply took off in China. Premium sales today are 30 times what they were in 2000. The Chinese consumer ‘got’ premium and wanted it now. China became a material profits driver for some: for the German premium OEMs perhaps as much as 50% of profits and for GM, China has probably exceeded 100% of its profits and before its insolvency was probably the only profitable part of the business. We are even seeing the beginnings of an IP legislation that has some teeth and so in a 600-word version of a much more complex tale, we have arrived at the current day.

So what does the Chinese Auto industry look like today?  There are many counts, but 77 domestic OEMs is the best estimate I’ve seen with revenue of $287bn spread over 13.9m units, 682 models and about 500 platforms.  The average Chinese OEM offers nine models and produces 20,000 units per model.  Critically, this all includes JV output.  Take that away and it looks even worse.  Chinese OEM revenue per platform is around $0.5bn; compared with, say, VW around $12bn.  Chinese policy is worsening this situation by forcing JVs to add a JV-owned brand product to the line up.  Just what China needs:  more models and more brands!

The overall market, by value, is 25% Chinese OEMs; 70% JV OEMs and 5% imports.  The domestic share has shrunk from 40% a decade ago.  The majority of the Chinese OEM vehicles are in the A & B segments, and they compete almost entirely on price. Meanwhile premium has grown to 17% of the market.

What are the trends in today’s Chinese auto market?

• Owner drivers.  I was struck, at a friend’s wedding in Shanghai recently, to see a young married couple arrive in a Panamera.  Very glossy and so far, so Shanghai, but there was no one in the back – they drove themselves.  Labour costs have driven up the cost of chauffeurs; and car ownership is spreading further down the wealth spectrum, so China today is no longer a purely-chauffeur market.
  This raises all sorts of interesting questions around the touch and feel, handling and infotainment preferences of a Chinese owner-driver compared with a western driver?  We don’t know the answers yet, but they will have views, and those views will start to drive car design globally.
• What happened to China being a sedan market?  When I was last in Hangzhou, I would say one-third of the cars not only are driven by the presumed owner, but are small hatchbacks.
• Regulatory pressure on fuel consumption.  Note, not CO₂ as in the West, which a cynic like me might note as purely tax-driven.  China will have to import any incremental gasoline that it uses; and that’s a strategic security risk which China doesn’t want to take on, so this not a cynical tax game; it’s a real issue.  We ain’t seen nothing yet on fuel consumption regulations in China.
• Further premiumisation (sorry, that word again). Already 17% of the market, and is expected to grow to 25% by the end of the decade and its all foreign OEMs; none of it is Chinese-branded.  . There has been some very interesting work done recently on the price discount that domestic brands suffer over imported brands.  Its at least 30% on a like-for-like basis never mind about adding “premium” on top of that.  That’s crippling!
• Exports: struggling domestic OEMs trying to drive volume through exports.  To Iran.  I’m not aware of any country / industry becoming competitive through exports:  successful exporters have been strong at home; and have taken those successful products abroad.  Exporting based on price needs a sustainable cost advantage….
• Costs:  China is no longer a cheap place to make cars.

So where does this leave the domestic OEMs that we started with?  The simple answer – in trouble.

• Costs are spiralling – I can remember when advising on the Shanghai / Rover MG deal that skilled labour was at risk of getting to $1 a day.  It’s eight times that now, which challenges the whole labour-driven model. VW has stated that its Slovakian factory is cheaper than its Shanghai ones;
• Quality is great, really it is.  I like nice, tight shut lines; but it comes with a cost.  To achieve the relentless consistency that modern car manufacturing demands, you need machines.  That means that the factories look much like western ones; cost the same; and labour falls to less than 10% of the cost, although you need more checking in China, so that offsets the slim cost advantage that you thought you had in China;
• R&D.  I’ve heard various estimates of the number of Chinese OEMs, but lets stick with the 77.  BMW spends more on R&D than the top 10 Chinese OEMs combined spend outside their JVs.  So does Daimler, VW, GM, Ford, Toyota, Honda, Hyundai etc etc.  Even Porsche spends more than the top ten Chinese OEMs in absolute terms. The Chinese OEMs aren’t catching up either. They are falling further and further behind.  Making a 2-litre gasoline engine produce 200 bhp isn’t so hard; but making it do that and 140g CO₂ with acceptable noise, vibration and harshness (“NVH”) characteristics, bulletproof reliability and 100,000-mile plus durability is really, really tough. Their engines are mostly designed by AVL and Ricardo.  They are stuck at the assembler stage and are a long way from being effective integrators let alone developers.  The Chinese OEMs spend a smaller percentage of a much lower sales value on R&D, leading to pitiful results.
• Brands.  This, frankly, is the biggest issue.  There are two global auto brands owned by China:  Volvo and MG.  That’s it.  It has taken Toyota 20 years to establish a second-rate US premium brand (Lexus). The reality is that there are four global premium brands (plus the super premiums like Ferrari etc):  Audi, BMW, Jaguar Land Rover and Mercedes.  That’s what consumers want to own.
• Component suppliers: not one of the global auto component leaders is Chinese, whichever segment you look in.  There are large ones, such as SAIC’s component business but no scale leaders.  None with class-leading technology.  Increasingly, they are losing their cost advantage.

Put all this together and I simply don’t see how with fragmented R&D, smaller volumes, lower price points, and an uncompetitive parts supply chain that this industry can compete on a global scale without fundamental restructuring (and, given that M&A is my day job, a bit of that as well).

What’s wrong? The JV concept is flawed.  Western OEMs are not going to share their technology if they can possibly avoid it.  Not now, not ever.  Sharing means creating a competitor – why would you do that?  I know that GM has been forced to do so as a result of its insolvency, but waiting for your JV partner’s insolvency isn’t a strategy you can plan an industry around.

There are far too many OEMs in China.  The National Development and Reform Commission (NDRC) has recognised this and published its list of consolidators, but nothing that I have noticed has happened.  China will never, ever catch up on R&D, let alone pull ahead until there are, say, three Chinese OEMs, each of which is spending more than the major western OEMs on its own R&D.  Modern cars are very complex and while it’s relatively cheap to catch up, copy, call it what you will, it’s really, really expensive to develop original new technology that meets all the varieties of legislation around the globe.  Mahindra did a great job developing the Scorpio for $150m; it was highly fit for purpose and quite correctly based on simple tried-and-tested technology.  The market loved it, but I doubt Land Rover lost a wink of sleep; and I can’t see Mahindra being able to develop a new Range Rover competitor for anything but a factor of that.

Exports.  Forget about it.  If you aren’t competitive at home, you won’t succeed abroad, and I don’t count places like Iran.  Price is not a long-term strategy unless you have a sustained cost advantage.  China doesn’t.

Bluntly, I think China needs to control more premium brands.  That’s a wonderfully vague statement but you only have to compare, say, BMW’s margins with any of the mass-market manufacturers and it’s very hard to argue with.  Of course, the Chinese state could go on subsidising the industry for the 40-50 years it takes to develop a premium brand but I can’t see that happening somehow.

If this sounds critical of the planning behind the Chinese car industry, it’s not meant to.  I’m awestruck at the progress that’s been made in the last decade even, never mind about the turn around in a remarkably short period from what I dubbed the “early days” of the mid-80s.  It’s never been done in such a short time period anywhere else in the world.  Amazing.  It’s just that the industry is at a turning point where the structure which has served it well to date isn’t right looking forward. So China needs the boldness and the vision to implement some of the changes that it has already presaged; and, in some areas, go further still.

I can’t wait and I only hope to be able to play a small part in it, as I have to date.

Meyrick Cox is a Managing Director at Moelis & Company, an independent global investment bank that provides financial advisory, capital raising and asset management services to a broad client base including corporations, institutions and governments. Mr. Cox has more than 25 years of investment banking experience representing the world’s largest automotive and industrial companies across a broad geography including Europe, Middle East, Africa, India and China; in particular he has been involved in the creation of six of the Chinese Auto Joint Ventures (JV) and almost all outbound Chinese Auto Original Equipment Manufacturers (OEM) acquisitions. Automotive PR, a global service provider, facilitated Mr. Cox’s appearance at the Global Automotive Forum in Chengdu China in October 2011. This article is in part based on his presentation.

The interview between Thoughtful Media and Ford’s Vice President of Distribution, Nigel Harris gives some clear insights on how Ford reaches consumers and how it reels them into the brand. Although Ford’s sales lag behind GM’s sales, Ford is very pro-active in reaching potential consumers via traditional print media, social media and internet advertising. Having met Nigel myself a few years ago in Chengdu I can confirm that he is more than up to the task of clearing Ford dealerships of Ford vehicles.

Before Ford launched the Ford Fiesta in the Chinese market Ford sent out its high up executives to follow various ‘mei mei’ around town, (mei mei of course being the term for a young girl), before this sentence takes a turn for the worst Ford’s goal was to better understand the target audience for the Fiesta ahead of its launch as well as small car buyers in general. Ford wanted to have a greater understanding single, independent, female executives with an income of around 1500USD per month. Judging from Fiesta sales over the course of 2011, it seems that Ford’s homework really paid off, the Fiesta was one of the better selling small cars last year although it did face some strong competition from newer models over the course of 2011.

The L6 will be positioned above the recently-released G6 in an attempt to seize a piece of the rapidly-expanding luxury auto market. The L6 will likely come available with the  same power-train as the G6: BYD’s own 1.5L/1.8L TID series (TID=Turbo-charged/Direct Injected/Dual Clutch Transmission), though a 2.0L version is likely in the works.

The L6 also appears to leverage BYD’s core strengths: electronics. While the G6 introduced some nifty features such as a tire-pressure monitoring system, LCD dashboard display, and BYD’s own driver fatigue monitoring system, the L6 will likely come with a lot more. Spy-shots reveal a neat 10.2 inch touch-screen display in the dash and rumors are swirling of other high end features. Also, on the safety front, expect knee airbags and a 5-star C-NCAP rating.

The luxury car market will be a tough nut to crack as it is traditionally been dominated by well-known foreign brands and BYD is not alone among Chinese auto-makers seeking to push into this market. it seems that, thus far, BYD is back on the right track. Their newest models, the S6 and G6 have been instant hits. The S6 SUV has become the second hottest selling SUV in China (and first domestic SUV to receive a 5-star crash test rating), meanwhile the G6 became the top-selling domestic vehicle in its segment after just 3 months on the market.

Time will tell if the F5 and L6 prove their worth, but the spy shots are certainly encouraging.

So, enter Ford’s Kuga. The Kuga is somewhat larger than the Tiguan and is powered by the choice of a 1.6T and a 2.0T, the same 2.0T that is found in more prestigious vehicles such as the Volvo XC60 and Range Rover Evoque. Ford’s Chinese sales have been somewhat muted when compared to its rival, GM, but of course GM has multiple brands to play with in the Chinese market where as Ford only have one – they did try to introduce Lincoln via the Navigator but sales were low. Ford’s China sales grew to 519,390 units in 2011, on the other hand Chevrolet sold 595,068 units and 645,537 Buick’s were sold over the same period, Ford’s China line up is just five models, four locally made: Fiesta, Focus, Mondeo and S-MAX with the Edge SUV being imported from Canada. The introduction of a larger than the Tiguan compact SUV but selling in the same price range (200,ooormb – 300,000rmb) is likely to upset the market in a major way and will likely make the Kuga Ford’s biggest seller in the Chinese market in the next 18-24 months.

Goa Automotive website, Goa On Wheels, was somewhat astonished to find the Haval (nee Hover) H5 testing in the area and compared it to the Honda CRV in terms of size and comfort.

Great Wall, along with other Chinese manufacturers, are aiming for large export pushes in 2012, India is likely to be a tough nut to crack but Chinese manufacturers will eventually make their way into the market, and excel themselves.

From AFP:

Chinese automaker Great Wall Motor will open on February 21 a plant in Bulgaria, producing the first Chinese cars assembled in Europe, its local partner Litex Motors said Thursday.

The plant in the northern village of Bahovitsa near Lovech has been test-producing since mid-November. It has a planned annual capacity of 50,000 cars for the Bulgarian and European market and will employ up to 2,000 people.

The company also launched already its official advertising campaign in European Union member Bulgaria for the three models to be made here — the Hover H5 SUV, the Steed 5 pick-up and the Voleex C10 city car.

Litex Motors and Great Wall Motor, one of China’s leading maker of sports utility vehicles, signed the contract for the plant in 2009.

It will first assemble cars from Chinese-imported parts but Litex Motors said recently it was in talks with different subcontractors to gradually organise the production of some parts in Bulgaria.

Expert Ferdinand Dudenhoeffer from the Center for Automotive Research in Duisburg, Germany, said Great Wall had every chance to sell well in eastern Europe.

“Within five-six years, they will reach five-percent market shares in eastern European countries,” Dudenhoeffer told AFP, adding that Great Wall would open the way for other Chinese carmakers to come to Europe.

“This will be a new competitor on the Bulgarian market… But it is not bad to have a carmaker in Bulgaria,” Renault-Nissan’s Bulgaria CEO Bernard Neuviale also told AFP at the launch of their new Renault Twingo here Wednesday.

Great Wall cars would not directly threaten the sales of Renault’s Romania-made Dacia, he predicted.

“Great Wall will first have to prove many things — in the first place that it can produce here a car of good quality and then we’ll see. Their prices are also not so good,” Neuviale said.

So who are the potential markets for these sort of compact to mid size Chinese trucks? South American and Middle Eastern markets have been lapping up Chinese trucks for years, American trucks are taking the top end of the market along with Japanese trucks that have a stranglehold on the mid range markets. With the increasing complexity of Japanese and American trucks, developing world consumers are turning to Chinese trucks to fill the economical hole left by the Japanese as they went up market. JAC’s 4R3 will be up against Foton’s 2.8L Cummins Turbo Diesel powered Tunland truck in overseas and Chinese markets, Great Wall are also developing a large displacement (likely a six cylinder diesel) mid size truck for the export markets.

When or if the Up! will launch in China is still up for debate. Mini cars have long been the domain of Chinese manufacturers such as BYD with their F0 and Chery’s QQ, however foreign manufacturers such as Suzuki have been able to be relatively succesful with their own cut down super minis such as the new Alto which sells for around 15,000rmb more than the nearest BYD F0.

Porsche’s solution is to build its own track near Shanghai, at least according to a German media outlet Faz.net. The German’s are saying that the proposed track will be similar to Porsche’s own testing track in Leipzig. The Leipizig track is an F1 track but hasn’t seen an F1 race since 2002, and now serves as a Porsche internal testing track and as a hospitality track where Porsche owners, potential owners, and race fans can be thrown around the track either at the wheel of their own Porsche or with a driver.

Shanghai already has multiple race circuits of its own – the Tianma Race Track and of course the official F1 track which is known as the Shanghai International Circuit. Porsche’s have raced on the F1 Track plenty of times during the Porsche Carrera Cup races which are the somewhat boring precursor to the F1, and Porsche does use the Tianma circuit amongst others in China for its driving schools, so why build a new one? Porsche’s China success is built upon the back of the Cayenne SUV which account for the majority of its sales along with the Panamera, sales of traditional two seater sports cars have been quite low so far due to the lack of a true sports car culture in China, the most obvious way to boost sports car sales is to create a culture around them and the best way to do that is if you have your own Porsche test track.

A February launch is being guessed at by Chinese automotive media and initial engines will be 1.2TSI, 1.4TSI and a range topping 1.8TSI, pricing is expected to be from as low as 220,000rmb to as high as 330,000rmb, of course the guesstimates came due to the Beetle being spotted being shipped around Beijing on the back of a flatbed truck. The Beetle will of course be sold via VW’s Imported Range dealerships which are separate to FAW-VW and SH-VW dealerships.