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Lessons to be learned from the US

THE impact of the global financial crisis on the auto industry has been growing since the second half of last year.

China stepped up a series of efforts to defy the economic downturn and spur domestic consumption, sending positive signals to the industry.

Fuel tax reform is the latest government effort to direct the automotive industry toward greener and more energy-efficient methods.

The struggling US auto industry is also teaching Chinese counterparts that more attention should be placed on small cars and new-energy vehicles.

China lost its first dispute since it entered the World Trade Organization in 2001 when tariff policies on auto parts drew criticism from western car makers.

Shanghai Daily previously highlighted the first five of 2008's top 10 auto industry stories. Today, we publish the remaining top stories of the year.

Fuel tax reform

China announced its long-awaited fuel tax reform at the end of last year, a step on the road to creating a more flexible fuel-pricing system and achieving energy-saving targets.

In the more market-oriented fuel pricing mechanism, consumption tax on gasoline and diesel will be raised while some fixed road fees were abolished.

It is thought that the reform will prompt motorists to drive less since driving costs will largely depend on fuel consumption.

Along with a possible higher fuel price in the future, the fuel tax reform will also spur the use of small-engine powered vehicles and new energy vehicles.

Opinion: The importance of the fuel tax reform lies in its close link to the driving costs of every car owner. It is widely believed to be the most crucial government drive to promote small cars and a good opportunity for development of eco-friendly and energy-saving technologies. The demand for small cars is expected to be boosted this year after China announced a cut in sales tax.

US auto meltdown

The United States auto industry was the second biggest victim of the global financial crisis after the banking sector. Facing a sales slump and difficulties in financing, General Motors, Ford and Chrysler were forced to count on a US$17.4-billion government bail-out to avoid bankruptcy.

GM and Chrysler have won their first batch of US$4 billion financial support from the US government after they pledged to use the money on technology updates and the development of greener vehicles.

In order to tackle its difficulties, Ford shed its luxury Jaguar brand and Land Rover to India's Tata Motor while selling its stake in Japan's Mazda Motor for more operational liquidity.

Chrysler was also forced to abandon its cooperation with China's Chery Automobile Co on small-car development.

Opinion: Being heavily reliant on gas-guzzling large cars was considered the main reason behind the decline of the auto industry in the US after fuel prices surged in the first half of last year.

Chrysler and GM are both focusing on new-energy vehicles as part of their plans to turnaround their fortunes.

That should be a lesson for domestic manufacturers to focus more attention on fuel-efficient vehicles to adapt to the changing market.

On the other hand, Chinese car makers should also take the opportunity to seek more valuable assets from their US counterparts with the aim of enhancing technology and research and development. WTO appeal

China lost a key part of its appeal against a World Trade Organization ruling that its auto parts tariff policy violates international rules last year. It was China's first defeat since it joined the organization in 2001.

The dispute, lasting for two years, centered on China's insistence that foreign car manufacturers producing vehicles in the country must pay a higher tariff on imported auto parts exceeding 60 percent of a vehicle's value.

China argued that the move was designed to prevent foreign car makers from gaining an unfair advantage by importing vehicles in parts to circumvent the higher tariff. China hasn't made it clear how it will change the policy yet. Otherwise, it would face punishment from overseas counterparts.

Opinion: Opening the market is one of China's obligations to the WTO.

Foreign auto makers are already expanding domestic sourcing of auto parts, and that trend is unlikely to change dramatically, given the price advantages of Chinese products.

We are definitely not willing to see the streets full of cars made by overseas car makers taking advantage of trading loopholes.

Analysts said that the government would adopt other measures such as a stricter car registration system to remain in control.

Anti-monopoly law

China's first anti-monopoly law took effect on August 1 last year with the aim of preventing price fixing.

The biggest impact on the auto industry is that it allows dealers to have a bigger say with car makers in setting prices. That means buyers are likely to pay less as market competition will prompt dealers to cut prices.

Local governments will also no longer be allowed to force companies to buy cars made by domestic makers as part of the government procurement programs, and this will create opportunities for car makers previously not covered by the government procurement programs.

Other changes will dilute the dominance of authorized dealers in the after-sales market.

Repairs and maintenance, with cheaper spare parts, can now be offered by other dealers.

Opinion: Some dealers will face the possibility of being driven out of the market after their dominating positions are diminished. That would possibly ignite a consolidation among dealers.

DCT transmission

Leading international auto parts maker BorgWarner and 10 major Chinese car makers have jointly set up a venture for developing dual clutch transmissions (DCT) in China.

The move reflected China's intention to spend more money on introducing core technology for industrial upgrades and encourage companies to develop their own products.

DCT is the world's most advanced automatic transmission system and is widely expected to be in high demand in China because of its improved efficiency.

Total investment for the joint venture amounted to US$200 million.

Annual production is predicted to reach 1.5 million sets by 2020, supplying the majority of Chinese car makers including the SAIC Motor Corp and Geely Automobile Co Ltd.

Opinion: This is the first time that the combined resources of different car makers have been used to focus on one spare part. The biggest concern is that 66 percent of the joint venture is owned by foreign companies, which would make it hard for China to acquire the core technology.


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