Carmakers maturing, but can they go global?

by Michael Robinet

BEIJING, April 20 -- In many cultures, families hold a
celebration signaling that a teenager is ready to transition into adulthood - a
coming of age. Many global observers look to last year's Beijing Auto Show as a
sign that China's vehicle manufacturers are ready to take a similar step toward
maturity on the discerning and competitive global stage.

With a newly expanded venue in Beijing, several manufacturers took the
opportunity to show a range of offerings seemingly engineered with global
exports in mind.

Chery, Geely, FAW and SAIC all raised their game significantly last year,
as did several other smaller China-based auto producers.

Each used Beijing as a launching point to debut vehicles and technologies
to prepare for expansion in China and other markets.

Possibly the most important introduction last year was the Roewe 550
compact sedan - designed completely by SAIC with its big brother the Roewe 750
as a starting point.

Not shared with either of its partners General Motors and Volkswagen, the
550 is crucial to SAIC's ability to expand in China and abroad on its own terms.
The sedan's level of technology integration, fit and finish as well as styling
signaled to the world that China is ready to truly become a global force in the
highly competitive industry.

The Roewe 550, as well as other China-designed offerings, impressed many
foreign vehicle makers.

They surely took notice of the tremendous progress and, more importantly,
the looming competitive threat from China. This year's Shanghai Auto Show will
be part of continuing this maturation, especially amid global economic turmoil
that has placed the automotive industry flat on its back.

Impressing global visitors with a display of substantial progress in
vehicle design, value, content, technology and build quality is the number one
priority for the Shanghai show.

Despite the financial condition Detroit's Big Three and poor output driven
by the massive inventory correction underway in Japan and Europe, China's
players face a changing competitive future. The current economic downturn, the
focus on lower global dependence on fossil fuels and the importance of a vibrant
domestic automotive industry for most industrialized economies adds to the
challenge of future market success for the Chinese.

Protectionism emerges

The prospect of automotive protectionism lurking within various Western
economies' domestically focused policies should concern everyone in the
industry. For over three decades, substantial bilateral and multilateral trade
agreements have increased economies of scale and vehicle build quality, lowered
overall costs and placed today's vehicles within reach of more consumers than
ever before.

Breaking down tariff walls has been one of the driving forces behind
expansion of the global automotive industry. Poorly conceived nationalistic
policies seeking to inefficiently protect employment could sacrifice the long
term for short-term political gains.

Global leaders need not make the same protectionist mistakes from past
economic downturns. The industry's globalization is real, substantial and cannot
be shifted into reverse. The best option is to forge ahead as one industry,
seeking the most efficient solutions to our myriad of complex issues.

New technologies

Another challenge facing all industry participants includes technology
access, implementation and integration. Today's discerning consumer is expecting
more from less. More content in the form of in-car communications, audio
capability, passenger comfort and occupant safety is critical. Consumers will
also be expecting less, such as vehicles with smaller mass that consume less
fuel with lower carbon footprints.

China's vehicle manufacturers knew long ago that beyond fruitful
associations with global vehicle makers to understand how to design and build
the vehicle, the key to success abroad is the seamless integration of
state-of-the-art technology through relationships with Western component
suppliers.

Demands from the ever-discerning global consumer coupled with stiffening
safety, fuel economy and emissions regulations from various governments create
additional hurdles for success in tomorrow's market.

Rising Corporate Average Fuel Economy (CAFE) standards in the U.S.,
preparation for Euro VI emissions standards midway through the next decade and
the implementation of new emission standards in other jurisdictions place new
importance on powertrain technology and efficiency.

No longer can vehicle manufacturers build outdated products for several
years without a substantial update.

Globalization

Several factors are propelling the shift to high-volume global platforms. A
platform is the structural basis that can support several body styles and
nameplates.

A single platform can form the basis of a sedan, coupe, crossover utility,
a tall wagon and even a convertible.

The ability for a company such as Toyota to share component sets and build
formats between the Camry sedan and the RAV4 CUV is invaluable.

Better known as global platforms and component sets, virtually every
successful manufacturer utilizes global platforms to react to consumer shifts,
maximize fixed production capacity and lower the cost per vehicle.

The secret to the success of the Japanese manufacturers and Volkswagen is
imbedded in the ability to build several different types of vehicles from few
platforms globally.

Several vehicle manufacturers are learning the lesson underscored by
Chrysler in North America: do not focus on one region and spread yourself too
thin between too many segments.

A major driver behind the Chinese government's recent proclamation to
reduce the number of vehicle manufacturers is the goal to build strong globally
competitive vehicle makers that someday will be able to effectively extend their
reach beyond China. This must extend beyond exports - localization of production
to key markets is part of a successful strategy.

Lessons from the past

Tomorrow's vehicle manufacturers and parts makers can benefit from the
years of case studies on automotive expansion strategies, some successful, some
not.

Back in the early 1970s, Japanese vehicle manufacturers focused on
expanding beyond their own market with a couple of key vehicles, choosing to
lower costs and enhance quality as each model was revised, known as the kaizen
approach to continuous improvement.

In the 1980s, these same makers knew that real success stemmed from
manufacturing locally in key export markets, moving closer to the consumer and
eliminating currency as a variable in the cost of a vehicle.

Through that decade, new Japanese factories popped up in the U.S., Canada
and the United Kingdom. These same manufacturers simplified the process by
bringing their suppliers with them and building products already being built
back in Japan - the secret was to build upon lessons learned at the new
factories.

Hyundai/Kia also learned from Toyota, Honda, Nissan and others'
experiences. The company learned to emulate the successful strategies and be
careful not to duplicate those that the Japanese regretted. Chinese automakers
destined to be successful in China and beyond have the benefit of Japanese
hindsight but must make their own mark on the global industry as they expand.

Best expansion routes

Undoubtedly, two or three China-based vehicle manufacturers will be
successful on the global scene by the middle of the next decade. Their success
will hinge on their ability to adapt to a changing market, not expand their
vehicle portfolio beyond their efficient capability and integrate appropriate
technologies required for success against extremely competitive players.

Success is neither simple nor assured. They will face many hurdles as
global players strengthen their competitive game and raise the stakes. Chinese
makers have a sizeable internal market, the right industry relationships and the
benefit of hindsight to make their mark on the world's vehicle market.

Michael Robinet is vice president of Global Vehicle Forecasts for U.S.
automotive consultancy CSM Worldwide Corp

(Source: China Daily)