China. Construc)ng a Na)onal Auto Industry building space for the domes5c in a global industry

Transcription

1 China Construc)ng a Na)onal Auto Industry building space for the domes5c in a global industry Michael Smitka Prof of Economics Washington and Lee University Judge, Automo5ve News PACE Supplier Awards Industry Studies Associa1on Minneapolis, Minnesota May 25, 2016

2 Govt Goals Indigenous industry Making a Volkswagen (People s Car) Earning export revenue ABJECT FAILURE! market dominated by global OEMs most sales of fairly up-market vehicles exports falling heavy trucks somewhat different, not my topic

3 But success by any other metric! Biggest na5onal market 24 mil light vehicles vs 20.7 mil in NAFTA annual growth s5ll 6% = 6 assembly plants developing country legacy: excess entry 2015 GERPISA presenta5on now (today!) forthcoming paper lots of distor5ons most output via joint ventures, scabered geography focus of April UMTRI presenta5on failure of policy: will summarize ISA focus: upstream / downstream issues

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8 OICA: China Produc5on thru ,000,000 22,500,000 20,000,000 17,500,000 15,000,000 12,500,000 10,000,000 China All China Cars China Commercial China LCV China HT China Bus 7,500,000 5,000,000 2,500,

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12 Distor5ons developing country legacy import subs5tu5on industrializa5on dream of na5onal champion export of people s car entry excessive & upscale: typical of ISI local content incen5ves also typical but market grew and grew post years: 700K in 2001 è 21 mil in 2015 CAGR 25% [but single-digit avg post-2011] GM sells more in China than US [dibo VW, Hyundai] è economies of scale

13 Summary: distor5ons Excessive number of OEMs, models, plants 37 OEMs tracked by CAAM 12 firms in NAFTA, perhaps 20 firms in EU capacity u5liza5on of non-joint-ventures 50% late entrants also struggling Exports falling (and trucks moving to kits) Geographic spread not seen since branch plant days of US / pre-eu work of Klier and Rubenstein NO local industry in either ownership or loca5on

14 Big Ques5on who will be first global firm to exit!! over 100 domes5c firms have already exited in past Chrysler, PSA exited, have now reentered Mitsubishi Motors marginal in China, too

15 China: will there be local firms? entry via 50:50 joint ventures pure domes5cs: Geely, Great Wall, BYD, Chery... so far JV products dominate na5onal niches: diesel in EU, trucks in US, minicars in Japan electric in China? low-cost/performance ones outsell global leader Renault but dependent on subsidies that are widely abused

16 Can local firms develop? YES VW, GM, Hyundai-Kia sell more cars in China than anywhere else incen5ves for local development strong GM PATAC leading with 2,000+ engineers and will export to US from late 2016! local firms: maybe a lucky few will survive Great Wall in right place at right 5me for SUVs market leader with Haval 哈弗 is #1 in China sales 500,000/year but 10% price cut on Haval, while GW car sales falling

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18 2008 vs 2013 to fail is glorious China s domes5c industry is improving JDPowers Ini5al Quality Survey (2009 vs 2014) 318 domes5c 173 JVs 131 domes5c 95 JVs 25K 40K technical staff [+60%] 12K 26K R&D staff [+120%] 元 30 bn 元 70 bn R&D expenditures [+133%] 11K 31K patents ( 发明专利 ) 12K 46K u5lity models ( 实用新型专利 ) import share 5% parts good too = value-added

19 ISA auto sales bubble not unsustainable, but all wanted in ra5onal business planning not always evident Boards of Directors: what s your China strategy? 1,600 exhibitors at 2016 Beijing Auto Show dealerships not sustainable new car sales model parts suppliers look far beber full domes5c panoply, many also export

20 Suppliers legacy produc5on from days of Soviet aid labor-intensive local firms esp bulky simple / labor intensive radiators, seats, wire harnesses European and North American export base Firms that accompanied customers VW ca. 2000, others regional sales engineering now support for pure domes5cs, own OEs GM is leader

21 Distribu5on of Suppliers: Agglomera5on?

22 Example: Delphi 18 plants, 3 technical centers, 26,000 staff one division HQ is in Shanghai 3 plants, 1 tech center by end-2018 sales expanding 8-10 pct pts faster than vehicle market as pick up sales from addi5onal firms electric content rising, ac5ve safety CAGR 50% rolling out 48 volt systems with Chinese OEMs

23 Dealerships opportunis5c pursuit new car margins but there are no margins meanwhile other business lags minimal used car sales weak service revenue inchoate F&I [loan-lease-warranty] income selling real estate now best op5on!

24 Rampant Entry 26,000 dealers in China 16,500 in US with same geographic extent 344 dealerships just in Shanghai cannibaliza5on among brands different JV parts of VW in compe55on general fall in margins BMW had to infuse dealers with $850 million to make up for failure to hit holdback targets which hints at magnitude of BMW s profits!!

25 Barriers to broader profits inexperience and lack of support by factory itself partly a func5on of inexperience challenges with consumer credit informa5on support for lending s5ll in infancy young fleet inhibits used car sales 2/3rds of cars under 5 years old 80% buyers first-5me value-added tax system can broker but buy/resell incurs taxes car license restric5ons, other ins5tu5onal issues

26 Dealerships elsewhere Service is primary income driver even for luxury brands in the US In China not major revenue stream... yet lack of qualified service staff (no longer just mechanics, computers/electronics!) Weak sales è dealers exit: looming vicious circle new (late!) entrants face biggest hurdle

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