Mainland carmakers urged to diversify tactics

PUBLISHED : Wednesday, 26 December, 2007, 12:00am
UPDATED : Wednesday, 26 December, 2007, 12:00am

Surging domestic car demand and growing exports suggest a bright future for the mainland's car industry, but rising international concern over pollution poses problems that still await solutions from government and carmakers.

'Energy-related automobile policies, the green revolution and traffic congestion all put real pressure on carmakers,' said Chen Qingtai, a research fellow at the Development Research Centre of the State Council.

Behind the huge sales figures - 8.5 million to nine million vehicles this year - mainland carmakers are in a life-and-death struggle.

Mr Chen, the chief executive of Dongfeng Motor in 1982, urged mainland carmakers to catch up with international technology standards to strengthen their own brands. He suggested that mainland carmakers learn from the Japanese. 'Whenever they spent a dollar on new technology, they spent another seven dollars improving it,' he said.

Investing capital to build brands will not be a problem for big carmakers, such as SAIC Motor Corp, Guangzhou Automotive Industry Corp and Dongfeng Motor. They announced this year they would invest at least 10 billion yuan over three years to develop their brands, focusing first on the domestic market.

And the large car companies will be helped by government moves to consolidate the industry with small inefficient carmakers eliminated and larger ones merged into a few car giants.

'The successful alliance between SAIC and Nanjing Automotive Group will set a trend for industry consolidation,' said car analyst Matthew Kong of Fitch Rating.

The mainland will be able to demonstrate its ability to make green cars during next year's Olympics in Beijing; an unparalleled marketing opportunity.

Chongqing-based Changan Automobile is set to become the first mainland carmaker to sell a hybrid car next year.

Other global players, such as Nissan, General Motors, Volkswagen and Ford are preparing green cars - hybrids, electric and fuel cell cars - in the world's second-largest market.

A vice-minister of the National Development and Reform Commission, Zhang Guobao, said in September that the central government hopes to comply with Euro IV emission standards by developing cleaner diesel engines early next year.

The mainland has been unable to comply with the Euro III emission standards, which were to be fully implemented by July, because of inadequacies in the engines and the petrol that is in common use.

Industry players in the mainland are still looking for tax policies to help propel a green revolution in the automobile market.

Shi Yaobin, a director of the Ministry of Finance's tax policy department, has said it was considering tax policies to encourage manufacturers to produce more fuel-efficient and environmentally friendly cars.

But the tax has been tabled at least seven times in the past decade.

Meanwhile, raising the consumption tax on cars with engines of 2.0 litres or more to 8 per cent from 5 per cent in April last year did not appear to cool consumer preference for purchasing large cars.

A Standard & Poor's report pointed out that over-capacity and lack of consumer interest in small economy cars has put intensive pressure on carmakers which are already faced with slower sales growth and price competition.

This is especially true since, according to JD Power, a global marketing information firm, the mainland's car market is moving from first-time buyers to repeat customers who, presumably, have a clear idea of what they want.

This is not good news for some leading mainland economy car brands, such as Geely Holding Group, Tianjin FAW's Xiali and Chery Automobile.

Besides Chery and Geely, other mainland carmakers, such as Brilliance China and Great Wall Motor, looked overseas, focusing mainly on developing areas such as the Middle East, South America and Russia, to balance the negative impact posed by the competitive domestic market.

Meanwhile, the central government, under the eleventh-five-year plan (2006-2010), has issued directives encouraging carmakers to enlarge their export sales with their own brand of cars.

'When local carmakers can successfully enlarge their market share overseas, it will also help their brand recognition at home,' said Tian Yamei, a senior engineer at the China Association of Automobile Manufacturers.

The central government expects the mainland to export 800,000 vehicles next year, a 60 per cent increase, primarily by selling their own brands overseas, said Zhang Qi, an official from the Ministry of Commerce.

'We'll have more exports once we solve the shortage of ships capable of transporting the cars,' said Feng Fei, a minister of the industry research team of the Development Research Centre of the State Council.

Behind all the aggressive export plans of mainland carmakers, industry players know that the crowning achievement will go to the carmakers that are able to gain a foothold in western Europe and the United States.

Five carmakers, including Changfeng Motor Group, Geely, BYD Auto, China America Co-operative Automotive and Li Shi Guang Ming Auto, are taking part in the Detroit car show next month.