As China Cools, Automakers Eye Overseas Markets
Rising production capacity by Chinese automakers driven by the heady days of 30-50 percent annual sales growth has bumped headlong into a slowdown, and domestic firms are now seeking overseas customers from Egypt to Ukraine to Indonesia.
With Western markets still out of reach, China's domestic automakers are staking their export push on the same formula that's worked for them at home: no frills but acceptable quality.
Indeed, for many domestic automakers, relying solely on the China market is no longer an option.
"The rapid growth phase of China's auto market is coming to an end, and we see exports as one possible outlet for all the capacity we have built up," says Xing Wenlin, Great Wall Motor's vice president in charge of overseas markets. "We need to go beyond the China market to survive."
On the front line of this export push are low-cost models like Great Wall's Haval SUVs and a mini-car called Panda -- the same cars that the domestic automakers market to China's emerging middle class.
Good enough cars
The quality of those rides -- available for as little as 40,000 yuan ($6,300) -- might not be sufficient for consumers in the United States and Europe, but they're deemed good enough for emerging-market consumers around the world. Some in Western markets like Italy and Australia are also starting to notice those no-frills cars.
By satisfying a growing appetite for value cars like the Panda, Zhejiang Geely Holding Group Co., a Hangzhou-based automaker that acquired Sweden's Volvo in 2010, wants to become an export force. To power its push, Geely will rely on advanced technology from Volvo to improve and differentiate its cars.
"My vision," Geely and Volvo Chairman Li Shufu told Reuters, "is to sell outside China the same number of cars we sell within China."
This year, Geely aims to sell 460,000 vehicles overall: 60,000 to 70,000 outside China and the rest domestically. In 2010, the company sold 38,000 vehicles overseas.
Li declined to elaborate on how soon Geely can achieve the objective.
Other Chinese auto companies also are working to boost exports. Major players include Chery Automobile Co. and SAIC Motor Corp. They are doing so in part because the quality and safety of their Chinese-designed cars have improved.
Geely's technology and product-development chief Frank Zhao contends that a "commoditization" of technology has helped China's indigenous auto makers improve quality and raise Chinese-designed cars' credibility overseas.
Automotive design know-how was once a well-guarded secret of a dozen companies in the United States, Europe and Japan. Most of those companies were vertically integrated and produced in-house most of the components necessary to build cars, while sharing little of its expertise with others.
But now, Geely's Zhao says, much of that know-how has become available for anybody willing to pay for it.
Slowing economic growth in China also has fueled exports. Last year, vehicle sales in China grew just 3 percent after logging growth above 30 percent in 2009 and 2010.
That, in turn, has freed capacity to produce cars for export.
According to consulting firm LMC Automotive, automakers in China used 84 percent of their combined vehicle assembly capacity in 2010.
LMC Automotive expects China's capacity utilization rate to slump to 64 percent this year. That means 36 percent of automakers' overall capacity is likely to sit unused unless they can tap new demand overseas.
Last year, Chinese exports of cars and trucks reached a record 849,500 vehicles, up nearly 50 percent from 2010, according to the China Association of Automobile Manufacturers. A majority of those vehicles -- mostly vehicles priced well below 100,000 yuan -- were shipped to markets such as Brazil, Algeria and Russia.
Many analysts and industry executives expect the growth to continue at a similar high double-digit percentage growth over the next several years.
Global automakers also are starting to export from China.
One of the most aggressive is General Motors. After 15 years in China, GM has teamed up with partner SAIC Motor to export China-built cars to Egypt, Chile, India, Uzbekistan and elsewhere.
Among the most ambitious Chinese automakers is Great Wall Motor, an independent automaker in Baoding, an industrial city 160 kilometers southwest of Beijing.
Eventually, the U.S.
In 2007, eyeing an entry into the U.S. and European markets, Great Wall showcased products at the Paris motor show. But when it began making actual export plans, the company, which began manufacturing trucks in the mid-1970s and is still better-known for aping the designs of Japanese auto makers, realized it was an "overly ambitious dream," company vice president Xing says.
The U.S. market remains "an ultimate objective," the executive says. But for now its sights are set on emerging economies.
Advanced markets like the United States are out of reach for Chinese domestic automakers because of widespread skepticism over the quality of vehicles designed and produced in China. Stringent safety regulations in the United States also pose obstacles.
"It's a tough nut to crack," AutoPacific analyst Dave Sullivan said about the U.S. auto market. "The sheer cost of setting up a dealer network, building a brand ... It is a significant amount of money and to do it for a new brand, it is very, very difficult."
AutoPacific does not foresee Chinese automakers coming to the United States within the next five to six years.
According to Xing, Great Wall wants to sell 300,000 cars outside China by 2015, accounting for one-fourth of the company's overall sales for that year, which it projects to be about 1.2 million cars.
Last year, the automaker sold 83,000 cars outside China, while overall sales including exports totaled 480,000 cars.
Meanwhile, in the eastern China city of Hangzhou, Geely Chairman Li is counting on Volvo technology to give Geely a boost in exports, first in emerging markets but ultimately with an eye toward Europe and the United States.
Through a local British wholesaler, Geely last year said it planned to start selling by the end of this year a Chinese-produced mid-sized sedan in the United Kingdom.
Li says his company is still "studying" the idea, but individuals close to the company say any such move would mark the beginning of a broader push by Geely into advanced markets in Europe and the United States.
Indeed, for many domestic automakers, relying solely on the China market is no longer an option.
"The rapid growth phase of China's auto market is coming to an end, and we see exports as one possible outlet for all the capacity we have built up," says Xing Wenlin, Great Wall Motor's vice president in charge of overseas markets. "We need to go beyond the China market to survive."
On the front line of this export push are low-cost models like Great Wall's Haval SUVs and a mini-car called Panda -- the same cars that the domestic automakers market to China's emerging middle class.
Good enough cars
The quality of those rides -- available for as little as 40,000 yuan ($6,300) -- might not be sufficient for consumers in the United States and Europe, but they're deemed good enough for emerging-market consumers around the world. Some in Western markets like Italy and Australia are also starting to notice those no-frills cars.
By satisfying a growing appetite for value cars like the Panda, Zhejiang Geely Holding Group Co., a Hangzhou-based automaker that acquired Sweden's Volvo in 2010, wants to become an export force. To power its push, Geely will rely on advanced technology from Volvo to improve and differentiate its cars.
"My vision," Geely and Volvo Chairman Li Shufu told Reuters, "is to sell outside China the same number of cars we sell within China."
This year, Geely aims to sell 460,000 vehicles overall: 60,000 to 70,000 outside China and the rest domestically. In 2010, the company sold 38,000 vehicles overseas.
Li declined to elaborate on how soon Geely can achieve the objective.
Other Chinese auto companies also are working to boost exports. Major players include Chery Automobile Co. and SAIC Motor Corp. They are doing so in part because the quality and safety of their Chinese-designed cars have improved.
Geely's technology and product-development chief Frank Zhao contends that a "commoditization" of technology has helped China's indigenous auto makers improve quality and raise Chinese-designed cars' credibility overseas.
Automotive design know-how was once a well-guarded secret of a dozen companies in the United States, Europe and Japan. Most of those companies were vertically integrated and produced in-house most of the components necessary to build cars, while sharing little of its expertise with others.
But now, Geely's Zhao says, much of that know-how has become available for anybody willing to pay for it.
Slowing economic growth in China also has fueled exports. Last year, vehicle sales in China grew just 3 percent after logging growth above 30 percent in 2009 and 2010.
That, in turn, has freed capacity to produce cars for export.
According to consulting firm LMC Automotive, automakers in China used 84 percent of their combined vehicle assembly capacity in 2010.
LMC Automotive expects China's capacity utilization rate to slump to 64 percent this year. That means 36 percent of automakers' overall capacity is likely to sit unused unless they can tap new demand overseas.
Last year, Chinese exports of cars and trucks reached a record 849,500 vehicles, up nearly 50 percent from 2010, according to the China Association of Automobile Manufacturers. A majority of those vehicles -- mostly vehicles priced well below 100,000 yuan -- were shipped to markets such as Brazil, Algeria and Russia.
Many analysts and industry executives expect the growth to continue at a similar high double-digit percentage growth over the next several years.
Global automakers also are starting to export from China.
One of the most aggressive is General Motors. After 15 years in China, GM has teamed up with partner SAIC Motor to export China-built cars to Egypt, Chile, India, Uzbekistan and elsewhere.
Among the most ambitious Chinese automakers is Great Wall Motor, an independent automaker in Baoding, an industrial city 160 kilometers southwest of Beijing.
Eventually, the U.S.
In 2007, eyeing an entry into the U.S. and European markets, Great Wall showcased products at the Paris motor show. But when it began making actual export plans, the company, which began manufacturing trucks in the mid-1970s and is still better-known for aping the designs of Japanese auto makers, realized it was an "overly ambitious dream," company vice president Xing says.
The U.S. market remains "an ultimate objective," the executive says. But for now its sights are set on emerging economies.
Advanced markets like the United States are out of reach for Chinese domestic automakers because of widespread skepticism over the quality of vehicles designed and produced in China. Stringent safety regulations in the United States also pose obstacles.
"It's a tough nut to crack," AutoPacific analyst Dave Sullivan said about the U.S. auto market. "The sheer cost of setting up a dealer network, building a brand ... It is a significant amount of money and to do it for a new brand, it is very, very difficult."
AutoPacific does not foresee Chinese automakers coming to the United States within the next five to six years.
According to Xing, Great Wall wants to sell 300,000 cars outside China by 2015, accounting for one-fourth of the company's overall sales for that year, which it projects to be about 1.2 million cars.
Last year, the automaker sold 83,000 cars outside China, while overall sales including exports totaled 480,000 cars.
Meanwhile, in the eastern China city of Hangzhou, Geely Chairman Li is counting on Volvo technology to give Geely a boost in exports, first in emerging markets but ultimately with an eye toward Europe and the United States.
Through a local British wholesaler, Geely last year said it planned to start selling by the end of this year a Chinese-produced mid-sized sedan in the United Kingdom.
Li says his company is still "studying" the idea, but individuals close to the company say any such move would mark the beginning of a broader push by Geely into advanced markets in Europe and the United States.
