Road to success

PUBLISHED : Wednesday, 18 July, 2012, 12:00am
UPDATED : Wednesday, 18 July, 2012, 12:00am


Related topics

As China has roared into position as the world's largest car market, Hangzhou's production and components markets have gone along for the ride.

With light-vehicle sales on the mainland surging from 5.3 million in 2005 to 17.9 million last year, Hangzhou's car industry is more potent than ever, according to Tim Dunne, director of global automotive operations for market research company JD Power.

Today, the region hosts a mix of local companies and joint ventures, with international names, such as Nissan, Iveco and Johnson Controls, establishing facilities in the area.

Local output is staggering. With a global headquarters and production facility in Hangzhou, Geely's sales topped 400,000 vehicles in 2010. Hangzhou Engine produces 60,000 diesel engines per year, while Dongfeng Nissan Diesel plans to produce 50,000 trucks annually and Ji'ao Auto intends to manufacture 250,000 minibuses per year.

The local market started with medium and heavy trucks and, as the infrastructure developed, expanded to mini-cars and fuel-efficient vehicles, says Kevin Tynan, senior automotive analyst for Bloomberg Industries.

Because many of the firms service the entry-level market, margins tend to be tight. 'It behooves companies to be there and grow with the market. They can afford to lose margin in the beginning until they get established,' Tynan says.

The local industry faces competition within China. 'Regional production is increasingly coming from inland and once a car manufacturer shifts a production plant inland, suppliers will follow,' says John Zeng, Asia-Pacific forecasting director for LMC Automotive.

Still, the city boasts considerable advantages, including a built-in supplier base and a deep talent pool of experienced engineers and workers.

The region is also working to lure foreign partners that will bring a range of services. 'The bar for entry will be higher and [the state] will encourage them to create China-specific brands with local headquarters,' Tynan says.

Mixed economic signals have created a sluggish market. 'Consumers know there will be an incentive for new-vehicle purchases, but details have not been announced, putting them in a hold-and-wait position,' Zeng says.

The long-term prognosis for the car industry in Hangzhou remains bright, partially because the city provides a better living environment, with conditions akin to Shanghai, that makes it easier to attract top engineers, Zeng says. 'Focusing on production is difficult because you need lots of land and labour, neither of which is cheap in Hangzhou.' Instead, Hangzhou is encouraging the establishment of research and development centres and national headquarters.

Dunne believes the growth of the industry brings an increased awareness of what it means to the overall quality of life. 'The automotive industry has brought wealth and freedom of movement to millions of consumers, but with these benefits comes responsibility in terms of environmental implications, especially air quality.'