Carmakers see future in China
Mark Landler NYT
Friday, September 12, 2003
But some ask if sales can be sustained as companies rush in
FRANKFURT Canvass the top executives at the Frankfurt International Motor
Show about what gives them hope for their industry's future, and the answer is the
same: China.
With their home countries in the doldrums, and the outlook for 2004 scarcely better,
the eyes of the world's automakers are fixed firmly on the Chinese market, where
sales of cars and trucks are rocketing. "Growth in China is absolutely amazing," G.
Richard Wagoner, the chairman of General Motors, said here Wednesday. "The
Volkswagen brand sold more vehicles during the first quarter of 2003 in China than
they did in Germany," he said. "Last month, GM sold more vehicles in China than
we did in Germany."
To understand what that means, consider that GM owns one of Germany's major
car companies, Adam Opel.
Wagoner's theme was echoed by DaimlerChrysler's chief executive, Jürgen
Schrempp, who increasingly regards China as the cure to what ails his trans-Atlantic
colossus. And China is top of mind for BMW's chairman, Helmut Panke, who
likened his company's foray there to its landmark decision to open an assembly plant
in Spartanburg, South Carolina, in 1994.
It is easy to understand what is fueling the euphoria over China. Automobile sales in
China are growing at an annual rate of more than 50 percent, compared to about 3
percent in the United States and Europe.
By 2013, Schrempp predicted, China will be the world's second-largest car market,
after the United States, with 8 percent of global sales. In trucks, where it already
accounts for a quarter of worldwide demand, China will be the world's largest
market within a decade.
"The auto industry certainly hopes that China will be the cavalry pouring over the
hilltop, with bugles blaring," said Garel Rhys, the director of the automotive
industry research institute at Cardiff University in Wales.
But, he added, "the industry would be very foolish if they thought China was the
answer to all their problems."
Rhys said the euphoria masked a range of potential threats: a glut of foreign
carmakers entering China, the lack of a genuine used-car market, the development of
consumer credit in a country with debt-laden banks, and the simple question of
whether torrid growth in China is inevitable.
"In 1976, it was confidently predicted that Brazil would be an
eight-million-car-a-year market by 1996," he said. "It didn't happen."
As with the makers of products from laundry detergent to cellphones, car
manufacturers look at China and see a burgeoning middle class of perhaps 400
million people, with rising incomes and a taste for consumer products. Bayerische
Motoren Werke's new assembly plant in Shenyang, in northeastern China, will be
equipped to turn out 30,000 5-series sedans per year. Chinese drivers, Panke noted,
tend to favor cars with the most powerful engines. He expects China to become
BMW's best market for 12-cylinder engines.
DaimlerChrysler signed an agreement Monday to produce its Mercedes-Benz C-class
and E-class cars with a Chinese partner, Beijing Automotive Industry Holding.
Mercedes also has a thriving business in China importing its top-of-the-line S-class
sedans.
Indeed, DaimlerChrysler, like other foreign investors, wants Chinese officials to
drop a regulation that requires carmakers to maintain separate distribution channels
for imported and domestically made cars.
"Does it make sense to have separate sales channels for S-class and the C- and
E-class? Absolutely not," said Eckhard Cordes, a DaimlerChrysler executive who
helped negotiate the China venture. He said he was confident the government would
ultimately drop the requirement. DaimlerChrysler's investment in trucks in China
may prove as important as its venture in cars. It agreed to buy a stake in Beiqi
Futian, a truckmaker controlled by Beijing Automotive. The venture, Cordes said,
would allow DaimlerChrysler to produce a full range of commercial vehicles, from
Futian's simple trucks to Mercedes's sophisticated ones. As China's economy
develops, he expects buyers to gravitate to the Mercedes end of the market. "The
trucks you see today in China are the trucks we made 30 or 40 years ago," he said.
To some extent, DaimlerChrysler is playing catch-up in China. Most of the global
carmakers already have joint ventures there. Volkswagen, an early entrant, controls
nearly half the Chinese passenger car market, and is well represented in the luxury
range by its Audi brand. GM, which has a factory in the Pudong industrial park near
Shanghai, has had success selling its Buick Regal sedan to Communist Party
officials and executives at state-run enterprises.
Even Rolls-Royce, the venerable British carmaker now owned by BMW, has set up
dealers in Beijing, Shanghai and the southern city of Guangzhou to handle sales of
its new Phantom, which retails for $330,000.
Not every company is joining the eastward march. Renault, the French carmaker, is
content to sit on the sidelines for now. Its chairman, Louis Schweitzer, said at the
auto show that he would decide by next spring whether to undertake a major China
investment. Renault has a big presence in Asia through its 44 percent stake in Nissan
Motor of Japan. But it has struggled in other countries, notably Brazil. And China is
every bit as crowded as Brazil. "With everyone rushing into China, there's not a lot
of visibility right now," Schweitzer said.
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