Related News
Home » Opinion » Chinese Views
China's auto industry takes two roads to 'indigenousness'
By John Gong |
January 22, 2009, Thursday
|
Print Edition
Print Edition
HAVING an indigenous automobile manufacturing sector has long been an important trademark of the government's industrial policy.
This sector can be classified into two camps: a group of home-grown greenfield companies represented by Chery and Geely on one side, and the indigenous offshoots of joint-ventures with major foreign auto makers, represented by SAIC and FAW on the other.
The competition in-between doesn't just stop at the marketplace - the rivalry between the two business models and the technology development approaches to achieving indigenous "ness" also has been the centerpiece of the ongoing debate over China's auto industrial policy.
For some time, the first camp has seemed to enjoy an upper hand, as Chery and Geely had all experienced spectacular growth for the years before 2007. In recent years however, both companies' sales plummeted, plagued by quality and brand-image problems.
Such phenomenon is not unprecedented. Hyundai, a South Korean auto maker, entered the US market in 1986 with a single model, the Hyundai Excel. With a price tag less than US$5,000, a couple of hundred bucks cheaper than the cheapest car available at that time, Hyundai set a record of selling 126,000 units.
But soon poor quality and reliability problems started to take their toll. Three initial years of spectacular growth was followed by a prolonged period of sluggish sales.
In response, Hyundai invested heavily in quality. It added a 10-year or 100,000-mile powertrain warranty.
By 2004, sales started to turn around dramatically. Its quality and reputation have also improved greatly. However, it has taken the Hyundai brand a long time to recover from its initial tarnished image.
Today, even after 20 years, Hyundai cars are still priced at the low end of the market, even though some of its models have exceeded Honda, standing at the top of J.D. Power's initial quality ranking list.
SAIC adopted a different model. With strong cash-flow backings from its successful JV operations with GM and Volkswagen, it simply bought its way to "indigenousness."
My rough calculation is that SAIC in total has spent somewhere between 1.5 billion to 2 billion yuan (US$219 million-US$292 million) to develop a complete line of auto technologies and products..
Granted, much of it is actually bought from Europe. But SAIC actually owns it.
Aside from the debate about indigenous technology development, the more important thing is the brand.
As they say in real estate that it's all about location, location and location, the auto industry seems to be all about brand, brand, and brand.
SAIC's MG and Rowe lines see moderate sales growth, but they generally enjoy good reputations and are priced with brand premiums. Rowe 750 is the only indigenous car selling over 200,000 yuan.
Granted, 1.5 billion to 2 billion is a lot of money. But Chery and Geelys' route to indigenousness is not cheap either. Geely spent over 200 million yuan to develop a 1.8 liter engine alone. Chery spent annually 10 percent of its revenue on R&D. Both companies also relied on foreign resources for some of its technology development.
Chery and Geely recently invested heavily in improving product quality. But if the Hyundai's North American experience serves as a lesson, the brand image problem may take many years to recover.
In the end, the debate about the right industrial policy of achieving indigenousness is moot in my opinion. If I were asked which is a more successful business model, I would say, "show me the money."
In an era of global sourcing and integration, whether some parts in a car are developed in China or not doesn't matter.
(The author is an economist based in Beijing. His email: johngong@gmail.com)
This sector can be classified into two camps: a group of home-grown greenfield companies represented by Chery and Geely on one side, and the indigenous offshoots of joint-ventures with major foreign auto makers, represented by SAIC and FAW on the other.
The competition in-between doesn't just stop at the marketplace - the rivalry between the two business models and the technology development approaches to achieving indigenous "ness" also has been the centerpiece of the ongoing debate over China's auto industrial policy.
For some time, the first camp has seemed to enjoy an upper hand, as Chery and Geely had all experienced spectacular growth for the years before 2007. In recent years however, both companies' sales plummeted, plagued by quality and brand-image problems.
Such phenomenon is not unprecedented. Hyundai, a South Korean auto maker, entered the US market in 1986 with a single model, the Hyundai Excel. With a price tag less than US$5,000, a couple of hundred bucks cheaper than the cheapest car available at that time, Hyundai set a record of selling 126,000 units.
But soon poor quality and reliability problems started to take their toll. Three initial years of spectacular growth was followed by a prolonged period of sluggish sales.
In response, Hyundai invested heavily in quality. It added a 10-year or 100,000-mile powertrain warranty.
By 2004, sales started to turn around dramatically. Its quality and reputation have also improved greatly. However, it has taken the Hyundai brand a long time to recover from its initial tarnished image.
Today, even after 20 years, Hyundai cars are still priced at the low end of the market, even though some of its models have exceeded Honda, standing at the top of J.D. Power's initial quality ranking list.
SAIC adopted a different model. With strong cash-flow backings from its successful JV operations with GM and Volkswagen, it simply bought its way to "indigenousness."
My rough calculation is that SAIC in total has spent somewhere between 1.5 billion to 2 billion yuan (US$219 million-US$292 million) to develop a complete line of auto technologies and products..
Granted, much of it is actually bought from Europe. But SAIC actually owns it.
Aside from the debate about indigenous technology development, the more important thing is the brand.
As they say in real estate that it's all about location, location and location, the auto industry seems to be all about brand, brand, and brand.
SAIC's MG and Rowe lines see moderate sales growth, but they generally enjoy good reputations and are priced with brand premiums. Rowe 750 is the only indigenous car selling over 200,000 yuan.
Granted, 1.5 billion to 2 billion is a lot of money. But Chery and Geelys' route to indigenousness is not cheap either. Geely spent over 200 million yuan to develop a 1.8 liter engine alone. Chery spent annually 10 percent of its revenue on R&D. Both companies also relied on foreign resources for some of its technology development.
Chery and Geely recently invested heavily in improving product quality. But if the Hyundai's North American experience serves as a lesson, the brand image problem may take many years to recover.
In the end, the debate about the right industrial policy of achieving indigenousness is moot in my opinion. If I were asked which is a more successful business model, I would say, "show me the money."
In an era of global sourcing and integration, whether some parts in a car are developed in China or not doesn't matter.
(The author is an economist based in Beijing. His email: johngong@gmail.com)
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
