Tag Archives: autos

China’s Car Makers Seen Surpassing Europe’s Volumes In 2013

China is set to surpass Europe in car making this year, speeding past another milestone in the rise of the country’s auto industry. The forecast comes from the Financial Times which commissioned five market research companies to project 2013 production numbers. Their consensus estimate is that China will make 19.6 million cars against Europe’s 18.3 million. The U.S and Japan, the next two largest car manufacturers produce 8 million-9 million vehicles a year.

The numbers represent a 10% increase in China’s production and a slight fall in Europe’s. China’s production growth is expected to easily outstrip that for the $1.3 trillion (sales) global industry as a whole of 2.2%, itself slower than 2012’s 4.9% growth.  Since 2000 car production in China has grown ten fold, on the back of strongly growing and government-supported domestic market, now the world’s largest. China’s carmakers then made barely one in every 27 cars manufactured worldwide. This year, on the basis of these forecasts, they will make better than one in five.

Their next challenge is to move up the product line value chain and establish international auto brands. There is no Chinese manufacturer in the top 15 of the world’s car makers ranked by global production volume, though China’s top three, Dongfeng Motor, Geely and Beijing Automotive would make the top 20.  There is one other big challenge, too, to make a decent profit from it all.

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What Can Beijing Expect From Obama 2.0?

U.S. President Barack Obama’s re-election has made moot the vacuous threat that China would be declared a currency manipulator on day one of the new administration as the Republican challenger Mitt Romney had promised to do had he won. Though China’s senior officials know enough of American presidential campaigns to ignore the shrillest words spoken on the campaign trail (and we may have Harvard University to thank for some of that, according to Bloomberg), Beijing is rarely a big fan of change. It will be happier with the devil it knows. One point of relief all round is that the unpredictability of an early test of a President Romney by Pyongyang will have been avoided. Yet it is worth asking how a second term Obama administration’s policy towards China could change from the first.

That was marked by Washington’s Asian pivot in foreign policy, still seen as a policy of containment of China by a hegemonic U.S. It will not escape Beijing’s notice that Obama’s first post-re-election-victory foreign trip will take in its old ally, Myanmar, which is shaping up as a testing ground of the competing thesis of whether economic reform has to precede political reform, the so-called Beijing consensus, or whether the two can move in lockstep, the Washington view. Yet the relationship between the superpowers is better characterized as increasingly tetchy, particularly over trade, tempered by the reality that they still have to deal with each other on a range of issues where their interests also range from competitive to common.

There was a cautionary note in Beijing’s official congratulations to Obama on his re-election, an expression of hope that the end to the election campaign would put an end to what it called the China-bashing game. That was played louder and more irrationally on the campaign trail by Romney, as is the wont of challengers unencumbered by the reality of office. Obama, as an incumbent, gets to play it for real.

The Obama administration has been ratcheting up the number of complaints about China it has filed to the World Trade Organization (and Beijing has responded in kind, we should note). There was one that is particularly significant to this Bystander’s eye. In September, Washington formally complained to the WTO about what it said were unfair subsidies to China’s auto and auto-parts makers. Obama needed, and got, the American auto workers vote this week. It won for him Ohio, one of half dozen key swing states with large numbers of electoral college votes and where one in eight jobs is tied to the auto industry, and Michigan, home state of Detroit and the Romney family as it happens. The labour vote also won for Obama Wisconsin, home state of Romney’s running mate, Paul Ryan.

One WTO complaint filing doesn’t make a swing, of course. Obama’s bail out of General Motors and Chrysler after the 2008 global financial crisis mattered a great deal more. Oddly, that was a lot less politically popular at the time of 2010’s mid-term elections, in which Obama’s Democrats were pummeled. But we do expect organized labor to be looking for a thank-you for turning that round and rallying to Obama’s cause this time.

We think that will manifest itself as intensifying trade disputes with Beijing, not just over the traditional parts of the car industry, such as tires and auto parts, but also wherever it touches the new technologies for alternative fuels and electric vehicles, solar power being one example of where it is already happening. As the Obama administration has been subsidizing electric vehicle development, that will provide plenty of scope, too, for Beijing to retaliate.

Greater trade friction is also inevitable as recovery of the U.S. economy requires export growth, an avowed Obama goal, and with that acceleration of  bi- and multi-lateral free trade negotiations, a game Beijing is playing, too. The TransPacific Trade Partnership could become a priority project for Obama as he looks to foreign policy in his second term to define his legacy. If there is a silver lining to any of that, it is that the detailed and unglamorous work of trade diplomacy could become a proxy for the security relationship, which then has some room to deteriorate, if it needs to on a rhetorical rather than real basis–and that might be driven as much as anything by internal Chinese politics as Xi Jinping establishes his grip on power with former Presidents Hu and Jiang looking over either shoulder.

There is one piece of change that we know is coming to Washington’s diplomatic front. U.S. Secretary of State Hilary Clinton has said she won’t do a second term in that exhausting office, and her assistant secretary of state for East Asia, Kurt Campbell, is also unlikely to continue. Senator John Kerry and U.N. ambassador Susan Rice are two names being floated as Clinton’s successor. Kerry might be the more welcome in Beijing. Rice would come fresh from the Security Council battles over Iraq and Syria.

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SAIC Sails Into India

In what may be a  preview of China’s manufacturing future, or at least a slice of it, SAIC Motor and its U.S. partner, General Motors, have started local production of the first Chinese-designed car for the Indian market. The two will start selling a version of SAIC’s Sail, seen above in a company handout picture, in India next month. Sedan and hatchback versions of the small car, already a popular seller in China, are being produced at GM India’s plant in Talegaon about 100 kilometers outside Mumbai. Production of a SAIC passenger van is due to start by the end of this year. SAIC has a 50% stake in GM India.

Foreign carmakers that have got a toehold in the difficult-to-penetrate India market have done so by having  a tight small car focus and country-specific models. South Korea’s Hyundai has found success that way despite being a late arrival in the  market. So, too, has America’s Ford now it has stopped reselling European models and launched its India-only Figo. GM had tried selling Daewoo-designed models in India but without much success, in part because they were more expensive than local competitors. SAIC not only brings a design but lower-cost manufacturing expertise.

One test for this particular step in Chinese carmakers’ tenuous steps in globalization is whether what works for car buyers in one of Asia’s two big emerging markets will work in the other. Another will be whether it is successful enough for SAIC to overcome GM’s caution about extending the partnership, a necessity in China, to a worldwide relationship.

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Buffett’s Ups and Downs With BYD

As a snapshot of global financial markets’ ups and downs, look no further than U.S. billionaire investor, Warren Buffett. In 2008, he paid $231 million for a 10% stake in BYD Co., China’s largest maker of rechargeable batteries and whose chairman, Wang Chuanfu, nurtured a dream of making electric cars. BYD’s F3 sedan was China’s best-selling marque in 2009 and 2010, but its hybrid F3DM and e6 electric model have not met with similar success and the company has had to delay the U.S. launch of the e6 until 2012. The company’s share price fell by 14% on Tuesday in the wake of a third-quarter profits warning. The value of Buffett’s stake is now down by $2 billion from its peak in October 2009, though still double what he paid for it.

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Renault Affair Is New Face Of National Rivalry

Is the Chinese auto industry behind the alleged theft of industrial secrets from the French automaker, Renault? Bernard Carayon, the French lawmaker from President Nicolas Sarkozy’s conservative party who heads parliament’s working group on economic intelligence, thinks there is reason to believe so, citing “proven, diverse and reliable” sources. Sarkozy, himself, has reportedly put the French intelligence services on the case. Three Renault executives, reportedly including one of its management committee, are accused to selling proprietary technical information about the engines and batteries for the electric cars on which the carmaker has bet its future to the tune of a $5 billion investment with its partner, Japan’s Nissan. The three executives have been suspended and face legal action, the company says. (Update: Renault said at the weekend that it has lost no critical technical or strategic information, only design and cost details. Via Deutsche Welle.)

Clean technologies in general and electric cars in particular are seen as a market in which Chinese companies can establish leadership. In 2007, a Chinese student on work placement with Valeo, a French clean-technology industrial group, was jailed by a French court for obtaining confidential documents from the company. Valeo now builds the power trains for electric cars it is developing with Beijing Automotive.

China is widely suspected in the West of indulging in widespread state-backed industrial espionage, the dark side of Western multinationals’ private grumbling that Chinese companies are draining them of technology in return for access to the Chinese market. China’s industrial development may be moving long-term from imitation to innovation, but the old habits are dying hard.

What makes that more difficult for multinationals is the way nation states’ expression of hard power is becoming more dependent on economic strength. Rivalry between nations is increasingly being framed in terms of economic competition, trade and investment jockeying, cyberwarfare and corporate espionage. This is happening when the leading, most technologically laden multinationals are becoming more global and less rooted in the nations from which they were born.

There is also a domestic French political dimension to the Renault case. If China’s involvement is established, it is likely to set back Sino-French relations. They hit a low point two years ago when Sarkozy criticized Beijing’s policy on Tibet before President Hu Jintao’s visit to Paris bearing a raft of Chinese buying orders late last year restored the equilibrium. Another downturn would make for a rough year for Sarkozy’ presidency of the G-20. He needs needs Beijing’s cooperation on issues from global governance to climate change for the successful high-energy presidency that is seen as a necessary precursor for his reelection as France’s president in 2012.

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Akio Toyoda’s Damage Repair

Last year, Toyota had to recall more cars from the China market than it had sold the previous year following quality problems at two of its joint ventures, Guangzhou Auto and Tianjin FAW. Last month it had to recall 75,000 RAV4 sports utility vehicles because of the same gas pedal problem that has forced similar recalls around the world and led the company’s president Akio Toyoda to making an apology to the U.S. Congress last week. Tomorrow, Toyoda will be in Beijing to try to repair the damage to Toyota’s reputation in the world’s fastest growing large car market.

The Japanese carmaker hasn’t matched the recent success in China of America’s GM among the foreign manufacturers, largely because it was late into the market and has a limited range of compacts, which has hindered it from capitalizing as much on government tax incentives for small cars. None the less, China is reckoned to be Toyota’s most profitable market now, and the difference between the company moving from being in the black and being in the red last year. As Toyota and the other Japanese carmakers are seen in China as a model for its own emerging carmakers with global ambitions, there is much reason for both sides to hang on Toyoda’s every word.

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Hyundai Enters Heavy Truck Market Via Baotou JV

South Korea’s Hyundai is getting into the heavy truck market through a $400 million JV with Baotou Bei Ben Heavy-Duty Truck, China’s sixth largest heavy truck maker. Hyundai aims to be selling 100,000 heavy-duty  trucks in China by 2014 and will take over Baotou’s manufacturing operations next year with a goal of raising current production of 40,000 vehicles a year to 100,000 by 2014, by when it will have revamped the model line based on Hyundai’s existing vehicles.

The stimulus inflated infrastructure and real estate building booms have spurred demand for construction equipment. China now accounts for 29% of the world market. Hyundai is getting in ahead of most other foreign auto makers. The South Korean group, which includes Kia, is the world’s fifth largest vehicle maker and already builds cars in China with Beijing Automotive. Baotou is also Beijing-based. Hyundai says it eventually plans to sell a full range of commercial vehicles, though its previous attempts to do so have been star-crossed. Earlier JVs with Jianghuai Automobile in 2004 and with Guangzhou Automobile in 2005 fell apart.

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