CLEPA Technology Day 2007 (part 3)

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62nd Frankfurt Motor Show - Afterthoughts

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New Directions for Auto Suppliers: A Radical Industry Reconfiguration?

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An A-Z report of the debuts and premieres at the Geneva Motor Show

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CLEPA Technology Day 2009

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Editor-at-large ANNE HOPE reviews the long, relentless march of China's rapidly expanding motor industry at home and abroad.

Once upon a time, Britain was the world's leading car exporter, but that was long ago, after World War II. In those days, the North Americans were concerned at the way sports cars made in the UK invaded their market.

In the 1970s and '80s, Americans were worried again - this time at how quickly Japanese cars gained a reputation for reliability, and sales of Japanese cars steadily grew and grew. Then, when the Koreans first tried to sell stateside, there was resistance. And a Hyundai factory, established in Ontario, Canada, failed.

Problems

However, in 2004 Hyundai opened a huge factory in Alabama, the state where DaimlerChrysler and Honda Motor have plants. And old established corporations such as General Motors and Ford face major problems meeting pension dues for their old timers while relative upstarts - in US eyes at any rate - such as Toyota are profitable and could soon overtake GM.

Toyota has already overtaken the world's Number 1 motor manufacturer in profitability.
So far no Chinese vehicle producer is making cars in North America. Not yet. However, as Reuters reported - in a 2005 survey headlined 'China's Car Makers Ready to Go Global?' - Malcolm Bricklin, the brains behind an attempt to import the Zastava, renamed Yugo, into the United States, plans to sell 250,000 Chery small cars there from 2007.

These will undercut the price of home - North American - produced cars by around 30 per cent.
There are also clear signals that the Chinese plan to produce or assemble cars in the West. The first Chinese assembly plant in the EU could be could be Nanjing's at Longbridge, UK, and relative newcomer Geely is already preparing for assembly with a local partner in Malaysia.

The Chinese certainly made themselves felt at the 2005 Frankfurt autumn motor show. While observing their antics in the huge, foot-bashing IAA exhibition halls, I became introspective and thought of the glory days when British car makers were world leaders at selling abroad and automotive engineering, and Rolls-Royce Carmargues were respected.

At Shanghai motor show, in April, 2004, the headline grabbers were: Shanghai Automotive Industry Corporation, thought to be taking over MG Rover; Geely, a fast growing, export-orientated company; and Chery, a make which garnered world-wide publicity after GM claimed Chery had infringed its copyright.

Though Shanghai may be China's top car maker, Geely - Zhejiang Geely Holding Company Limited, based in Zhejiang, China's eastern private enterprise hub, seems to be growing the fastest. Its Linhai factory - complete with body, paint and general assembly plants, engine performance monitoring and test track - opened in August, 1998.

It is now claimed to employ 3,000 workers and to be able to make 80,000 automobiles - the Merrie, Haoqing and Beauty Leopard, China's first 'own-bred' sports car - a year.

Taizhou, on stream from November, 2004, makes engines, gearboxes and also cars. Its 150,000-vehicles annual target is eventually expected to double.

Capacity

Ningbo, only operational for five years with 2,000 staff and l8 production lines, makes complete vehicles as well as automobile engines and gearboxes.

Its advanced technology embraces machine tools imported from Korea, equipment for steel sheet uncoiling, cleaning and coating, and 38 large mechanical presses and spot welding machines. Working two shifts, annual production capacity is l00,000 vehicles.

Ningbo's eight engine lines produce 150,000 power units a year. Its facilities for engine testing, precision measuring, cryogenic start tests and metal physical chemical metering enable integration of engine research, development, manufacture and marketing.

Geely claims Ningbo adds up to "the world's most advanced flexible production line".
The main engine factory in Shanghai uses "advanced technology from Japan and Germany to produce 50,000 engines a year" - 1.5, 1.6 and l.8 litres - with an American "tri-coordinate precision measurement room to ensure product precision and quality for medium-level cars and Geely's first sports car". After expansion, the Shanghai plant "may produce l00,000 engines per year".

Originally a refrigeration components manufacturer, Geely founder and chairman Li Shufu decided to enter car production nine years ago. More, he decreed that Geely would also produce engines, gearboxes and most of the many other components that go into a car.

To this end, an R&D facility, the three separate car-making factories and that engine plant were established.

Geely corporate enthusiasm is daunting. It intends producing 2 million cars a year within l0 years, and has already has made China's first "national" automatic transmission of its own design and its first power steering system - not to mention its claim to have produced the first Chinese sports car.

However, Nanjing asserts that the first mass produced sports cars, probably to be built at Longbridge and Nanjing, will be MG-badged, and says Geely's Beauty Leopard sports car is not yet in production, the Frankfurt example being very much a pre-production model.

Geely executives claim to be China's first "independent" - neither state-owned nor nationalised - vehicle producer. Though it enjoys regional and local - rather than state -aid and helpful banks.
My interview was quickly terminated when a Chinese delegation arrived. Politicians on a jolly? Cronies wanting to see the show debut China's first "cars for the masses"? Whoever they were, the Geely display was seen and heard loud and clear, thanks to colourful dancers and singers from Beijing Opera, claimed to have been in existence since 1790.

Options

Options offered in the Geely cars include electric windows, central locking, air conditioning, power steering, leather seats and lots more.

So Geely models also offer what Westerners expect in their cars - but at far lower cost than is usual in the West. Geely already has 253 sales outlets and 540 service stations in China.

As Li Shufu said: "We aim to make good cars that common people can afford, and we aim for Geely cars to go to the whole world." Import/export subsidiary, Geely Metop International Trade Co Ltd despatched its first vehicles in 2003. In 2004, it exported "a large number" of cars - though in fact China shipped fewer than 50,000, mainly to the Middle East, Africa and Central and South America.

However, amid warnings about over-production, it emerged that Chinese vehicle exports overtook imports for the first time during the January-October, 2005. Exports - largely comprising trucks or low-cost vehicles - more than doubled to 135,000 while imports - high-value luxury models from the US, Japan and Europe - fell 1.6 per cent to 128,000.

Geely has established trade relations with more than 50 countries, including the USA, EU, Russia and SE Asia. Daewoo, its car division now part of GM, had been helping Geely to develop and design new stamping dies, and also to synchronise engineering activities generally.

Discussions are proceeding with would-be distributors for all EU countries, and a Lisbon-based company has been appointed to represent Geely in Spain and Portugal.

Support

Geely wanted to grow fast, and has done so with the support of banks. Without backing from Hong Kong-based Guoron Holdings, Geely probably wouldn't have expanded so rapidly.

From one production line with a designed capacity of l00,000 cars per shift, Geely's actual production capacity may attain 250,000 in 2006, and the aim is 650,000 complete cars in 2007. These at least are the targets.

On press day at Frankfurt, 2005, the Brilliance display area was empty. Did this signal a recurrence of Brilliance's problems a year earlier, which prompted its PricewaterhouseCoopers auditor to resign? As Reuters reported at the time, Brilliance had been beset by industry-wide woes as well as its own problems.

In September, 2004, the company scaled down its annual sales target for its BMW joint-venture from l8,000 to "more than" l0,000 cars, and also reduced its sales target for its minibuses and Zonghua saloons.
A month before, there had been rumours that its four main directors had resigned, whereas they had in fact reduced their shareholding in Brilliance.

Yang Rong, the chairman, had fled to the US in 2002 after being accused of unspecified financial wrongdoings.

A year later Yang filed a law suit from the US against Liaoning provincial government, trying to recoup his investments in Brilliance and other seized assets. His controlling 39.45 per cent stake in Brilliance was bought by a Liaoning-controlled company in late 2002.

When the cars did arrive a day late at Frankfurt's IAA - and Brilliance people with them - I was told that a distributor for Germany was being appointed.

Also at Frankfurt was the Landwind, a go-anywhere 4x4, produced by Jiangling Motors, of Nanchang, and likely to be marketed in the UK from about £18,000. Could it be a cheap copy of the no longer made Frontera? Peter Bijvelds, from Holland but now based at Brasschaat in Belgium, where Landwind Motor Corporation has its headquarters, doesn't agree. He is bullish and wants Landwind to be sold in all 25 EU countries. It could happen as it appeals to those wanting low-cost go-anywhere ruggedness, rather than quality above all else.

The big question for China's manufacturers is: Do Western buyers want cheap basic cars or stylish, unknown models with badging no-one knows and names they cannot even pronounce?

In today's economic climate, it seems anything goes if the price is right. At least, if it runs, it sells.
MG may score, whether produced in the UK or China, for the brand is well known, and has a sporting heritage. Though such advantages decay after a period of invisibility. The powers that be at Nanjing are even considering reviving car names such as Austin. But that's another story.

Momentum

The overall outcome will in any event depend largely on recruiting skilled professional designers and engineers to augment Nanjing's own people, many of whom are in fact university trained.

The Chinese motor industry boom of 2002-03, when sales doubled to about 2 million, was truly amazing. Government figures suggest that China produced a record 4 million cars in 2003. The number of private cars increased by 80 per cent, driven by strong economic momentum and a growing middle class.
But political measures put the brakes sales in 2004, and they seemed reluctant to recover in 2005.
Nevertheless, according to the National Statistics Bureau, China produced 245,400 cars in October, 2005 - an increase of 67.6 percent year-on-year. Overall, China rolled out 2,358,800 cars during the first 10 months of 2005 - 21.5 per cent ahead of the same period in 2004.

Yet the 15 major car makers - including joint-ventures with American, European, Japanese and South Korean partners - faced a 51.3 per cent decline in profitability despite a 4.4 per cent sales revenue increase.

In December, 2005, China's Ministry of Commerce indicated there was a glut of about 2 million vehicles, cautioning that domestic over-capacity could increase further as new car plants were continuing to be built.

Ma Kai, minister at the State Development and Reform Commission, said that in an attempt to curb production no new steel factories would be approved in principle during 2006.

Water shortages, power cuts and pollution remain huge problems for China. More than 400 of its 600 cities endure inadequate water supplies, with water scarcity most severe in the north of the country.
This threatens not only urban dwellers' quality of life but also the nation's future industrial development and economic growth, counsels John McAlister, a water recycling company's chief executive.

According to the World Bank, China has only seven cars for every 1,000 people. This compares with more than 480 cars per 1,000 in the USA and the l2 countries in the Euro-zone.

Even so, China anticipates 140 million vehicles on its roads by 2020, a seven-fold increase that will spur demand for transportation infrastructure and services.

Eventually, the country's vehicle population will rise to 250 million, or about 150 cars per 1,000 people, predicts Li Xinghua, deputy director of the Communication Ministry's Comprehensive Planning Department.

Figures from the ministry indicate that China has already built 30,000 km of highways, the world's second longest network.

Freeways

Though in face of forecasts this is considered insufficient, and meeting the coming demand is regarded as a priority.

China's vice minister of communications Weng Mengyong said his ministry would champion "substantial, effective approaches" to building major national freeways to connect most Chinese cities and to accommodate traffic volumes.

Weng envisages construction of highways between provinces in western China - and also in the Yangtze River Delta in the east and Pearl River Delta in the south - will be complete by 2010.

Austin-Healey revival

The Austin-Healey legend is being readied for revival - twice over. But there could be a tussle over ownership of the marque, famous when the late Donald Healey, pre-war rally driver and Triumph's technical director, and his son Geoffrey developed their Austin-powered sports cars, made at Longbridge half a century ago.

For now Nanjing Automobile, new owner of MG Rover, and Yuejin Motor Corporation, with three vehicle production bases in China, want to produce Austin-Healeys - and probably some MGs and Austins - at Longbridge with assistance from GB Sports Cars.

But Tim Fenna, managing director HFI, owner of the Frontline Spridget since last summer, has also owned Healey Automobile Consultants. Fenna and HAF claim that the Austin-Healey marque is now the property of his company via Donald Healey's descendants, Margot, daughter of the late Donald Healey, and his granddaughters, Cecilia and Kate.