Tag Archives: car makers

The Key Supply Chain

AS A FOOTNOTE to our earlier observations of the impact of the coronavirus outbreak on supply chains, we read with interest a report in the Financial Times about how one carmaker, Jaguar Land Rover, has been carrying parts out of China by hand in suitcases.

What caught this Bystander’s eye was that the component in the most immediate critical short supply for the company was key fobs of all things. But then, if you cannot get into the vehicle in the first place, it probably does not matter what else is missing.

Joking aside, carmakers from Fiat Chrysler to Volvo are now warning that parts shortages because of disruption to their supply chains in China could force a suspension to production in their plants around the world, in perhaps as soon as a couple of weeks.

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When Does An American Car Become A Chinese Export?

A locally made Tesla Model 3 electric car seen in a Tesla showroom in Shanghai on November 22, 2019. Photo credit: Xinhua/Ding Ting.

TRADE WARS, US President Donald Trump famously said, are easy to win. But how do you keep score? A new blueprint for China’s car manufacturing sector raises precisely that question.

Jointly produced by the Ministry of Commerce and China Automotive Technology and Research Centre, it signals a switch of policy emphasis from attracting foreign carmakers who will partner with local manufacturers selling to the domestic market to attracting foreign carmakers who will use China as the production base for their global exports (report via the South China Morning Post).

A consequence of Trump’s tariff war with China is a somewhat-accelerated opening up of many sectors of industry to full foreign ownership. The car industry is expected to be included in that. The pencilled-in 2022 target date may be advanced under the Phase One trade agreement with the Trump administration.

The timing is not all trade-deal driven by any means. Chinese vehicle makers have probably got as much technology transfer as they can from their foreign partners and the domestic market for new car sales is soft. Thus the time is ripe to rally foreign carmakers to the cause of boosting China’s exports.

These account for a small share of the cars made in China. For example, 3.2% of the 2.6 million vehicles manufactured in November were exported, according to the China Association of Automobile Manufacturers (CAMM). (The figures exclude knock-down kits assembled in third countries.) At less than $9 billion, the value of the exports was one-sixth that of those of US carmakers.

China’s largest automobile exporter, Cherry, is aiming to export 500,000 vehicles by 2025, four times as many as now, indicating the scale of exports growth for the sector that the government is anticipating. As long as the vehicles are made in China, the government will not worry too much about the nationality of the badge on the car.

Electric vehicles will be a big part of the auto industry’s export drive. China’s manufacturers are already making headway in sales of electric-powered buses and trucks. Still, passenger cars are the potential mass market, especially the emerging middle-class consumers in the rest of Asia and Africa.

Tesla, the US electric carmaker, is the latest foreign car company anticipating the change; indeed it has got a head start as authorities have already allowed it to operate as a wholly-owned enterprise with no local partner. The first of its Model 3 sedans have just rolled off the assembly line at its new $2-billion Shanghai plant, its first outside the United States. Tesla is getting more breaks than most foreign carmakers because the new energy sector is one of the ten industries tabbed for Chinese global leadership under the ‘Made in China 2025’ programme.

But the question will be, does, say, an Indonesian buying a Tesla made in Shanghai think he or she is buying a Chinese or a US car? In other words, whose export is it? And will the opening up of China’s car market and manufacturing prove to do much for carmaking jobs in North America? Perhaps by then the few remaining unionised car workers at Detroit’s ‘Big Three’ should be pushing for their contracts to provide for profit-sharing on worldwide revenue and not just that from North America to reflect the new scorecard Trump’s trade wars will create.

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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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Chery Planning Car Plant In Brazil

A Brazilian newspaper, O Estado de S. Paulo, reports that Chery Automobile is going to start making cars in the country within a couple of years. It says a new plant will have annual production capacity of 150,000 vehicles, which would be sold locally and exported to other Latin American countries and the U.S.

Chery already has a joint venture with Argentina’s SOCMA Group and Oferol of Uruguay that assembles vehicles in Uruguay, but it is capable of producing only 20,000 vehicles a year. The Montevideo plant was opened last year and makes Chery’s Tiggo range of SUVs and QQ compact cars for the Mercosur market, the South American trading bloc that embraces Argentina, Brazil, Paraguay, Uruguay and Venezuela.

It was the Chinese auto industry’s first production plant in South American. The one proposed for Brazil would be s sizable step forward and up.

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GM Sells Cars, Not Car Companies In China

Bloomberg reports that Dongfeng Motor has heard from General Motors about buying assets the beleaguered U.S. automaker wants to sell. GM has started shopping its Hummer business. Saab and Saturn are also candidates to be sold.

This Bystander understands that GM talked to a couple of Chinese car companies during its first round of pitches for Hummer to potential buyers around the world, but that both were as lukewarm about buying it as everyone else. So while Dongfeng, like Shanghai Automotive Industries, has expressed interest in buying foreign marques, don’ t expect either of them to be on the short list for a second round of discussions about Hummer.

Another reason that Chinese investors are wary now of venturing abroad was summed up by Lou Jiwei, chairman of China Investment Corp. “I don’t dare to invest in financial institutions now,” he told an conference in Hong Kong. His two investments in U.S. bank Morgan Stanley and New York private equity group Blackstone have lost $6 billion. The two firms’ share prices are down 75% since he bought the stakes. That, though, is less than GM is seeking in bailout funds from the U.S. Congress.

China, by the way, is one of the brightest markets for GM, where Buick is a star performer, popular with top officials and not a staid brand driven by the silver haired set. Last year GM sold almost twice as many Buicks in China as it did in the U.S., 332,000 vs 186,000.

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Car Makers Tout For Cash

Carmakers everywhere are on the take, it seems. While America’s big three were petitioning the U.S. Congress for bailout aid, China’s were doing the same, asking for aid and for lower sales taxes, which can account for 50% of the sticker price. This year China’s car market is forecast to grow at 5%. American automakers would take that in a heart beat, but China’s have become used to the sort of growth rate that has seen sales increase fivefold in the past eight years. That has brought fierce price competition. Gasgoo.com, a B2B industry site controlled by Chery Automobile, China’s largest independent car maker, estimates that two out of five of China’s car dealers are losing money and nearly a third could close in the coming months.  This could force a wave of consolidation over the next one to two years among the country’s  100 auto makers, especially the smaller and more inefficient ones propped up by provincial governments,

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