Big country, big population, big growth, and already the world's largest market.
The booming Chinese market will grow to 19 million units of annual sales by 2016, according to the experts from the global auto consultancy practice at PricewaterhouseCoopers.
That would make China the largest maker and consumer of vehicles in the more than 100-year history of the business.
Moreover, you ain’t seen nothin’ yet, at least according to some speculation by me and other sources.
If these pro-Chinese factions are right, the home market could reach 30 million units by 2020 or so, and barring a political upheaval – a genuine risk that virtually everybody acknowledges– it could grow to 40 million units by the end of that decade. Who knows?
This means that Chinese makers will be hard pressed to keep up with internal demand and most Chinese cars — except for maybe the odd few Geely or Chery models — will not be exported. Actually, given their current quality, I argue that it would be better for established automakers if the Chinese did export large numbers of vehicles right now. Remember the Korean-built Hyundai Excel of the 1980s? It was so bad, except for the eastern European Yugo, that it set back Hyundai marketing in the U.S. for decades.
Many of the assumptions made about China are wrong, such as a coming Chinese export wave that enthralls media types and the opining classes, cautions Steve D’Arcy, a partner in PWC’s Global Automotive Practice.
There will be no massive wave of exports emerging out of China because Chinese makers will barely be able to keep up with burgeoning demand. Hence the 19 million prediction for 2016. As Chinese annual income levels keep rising to equal an average vehicle price of 38,000 RMB or ~$5,600 for a basic car, D’Arcy sees now reason why China won’t remain the world’s largest auto market, he theorized at press luncheon in Detroit today.
Because of its huge population, the extremely low number of cars per person (or per kilometer of the roads the government keeps building) and increasing wealth from a booming economy (which is expanding at double-digit rates), the Chinese love affair with the car is just beginning. And, it will be every bit as passionate as the American auto affair, where vehicles are still status symbols bought for reasons other than transportation.
Moreover, there might not be a massive outbound investment from China, another media favorite, to take over existing auto companies, except for maybe a few strategic supplier acquisitions, which are being quietly conducted.
Some, if not most observers, remain skeptical about the pending Geely takeover of Volvo, pointing out that Tata learned a very expensive lesson with its acquisition of Jaguar Land Rover from Ford Motor Company. A lesson that is ongoing, as JLR’s survival is by no means assured.
These, of course, are all hypotheticals, and come from some of the same people, including media, who missed the collapse of Lehman Brothers and AIG in the fall of 2008, and its subsequent negative effect on the global economy and auto markets.
So tough questions abound over any current assessment of the Geely deal in many automotive circles, starting here. You only have to look at GM’ s inability to unload Saab as a cautionary tale about the value of old line brands as a brave new world order emerges. Chrysler couldn’t sell the Viper business – engines, assembly plant, intellectual property rights and all the tooling for $10 million last year.
Worse, Geely has not been forthcoming about its business plan for Volvo — if it even has a fully or partially developed one. (The same applies at Saab.) And, for the record, note well that Ford says it will not take an equity position in the new company. So I conclude they aren’t betting on much of a dividend-paying future there.
So in the words of Jimmy Cannon, a sportswriter who began columns with” Nobody asked me but,” I’m wondering if Geely thinks it can move production from Gothenburg to China? Other doubts as to the wisdom of the deal remain. Maybe Geely can successfully build some Volvo’s in China, but can it market Volvo cars and SUVs any better than Ford already did globally? Hum. And with Volvo’s standards for quality, safety and technology, it will take a very long time to cut costs by substituting Chinese parts.
And Chinese makers are not remotely keeping pace with the technology development that is going on at existing global suppliers. I remember when Ford Motor first started assembling in China, it wouldn’t even buy local fasteners. That’s right, the company imported nuts and bolts to make sure that Fiesta models stayed screwed together.
Here’s a deliberately provocative question: maybe the only Chinese takeover of a western automaker that makes sense is for SAIC to swallow General Motors Company, the leading Chinese producer when you count its JVs?
It is no secret that the Communist Central government wants to concentrate the industry around a few Chinese companies – SAIC, FAW and Donfeng among them – as western partners and weaker Chinese companies are slowly phased out.
Cash strapped General Motors recently entered in agreement with SAIC to develop cars for the emerging markets in Asia, notably India. As part of the deal, GM gave up its controlling interest in SAIC and is now a minority shareholder.
And make no mistake, China is the automotive prize going forward. General Motors Company and its joint ventures in China had domestic sales of 1,826,424 units in 2009, which resulted in a record year-end market share record of 13.4%. It was an improvement of 1.3 percentage points from the end of 2008.