By on September 6, 2012

There is one thing about the Chinese car industry that can’t be said often enough: It is learning fast. A year ago, the recurring theme at the Chengdu Global Automotive Forum was brands, brands, brands. This year, nobody talks about new brands anymore. The only one who does is the CEO of Dongfeng, one of China’s largest automakers. He says last year’s brand binge was misguided, “irrational, incompetent, and immature.”

At this year’s Global Automotive Forum in Chengdu, the gateway to China’s wild west, Zhu Fushou admonishes the room that “brands don’t happen overnight.” Instead, he recommends that Chinese companies “acquire foreign carmakers in the U.S. and Europe.” A message that makes investment bankers in the room, and there are many, immediately whip out their Blackberrys.

The tone at this year’s Chengdu Global Automotive Forum in Chengdu definitely is more subdued, and more professional. Did I mention they learn fast?

If “brands, brands, brands” was the recurring theme of last year’s conference, this year, it’s the big slowdown. The Chinese bubble did not burst as many prophesied, it slowly deflates to what Zhu calls “micro growth,” or single digits to none. He actually predicts that China will be in micro growth mode for the next 10 years.

If Chinese companies want growth, they have to go abroad and look for it. It will be a tough job.

Chinese exports still are quite low, about 5 percent of total production. Where Chinese cars made inroads, they run into serious roadblocks. Russia and Brazil, the “B” and the ”R” of the BRICS, demanded that carmakers invest locally, or get hit by delirious custom duties for imports. Chinese companies did not get the message. They finally did after they were devastated both in Russia and Brazil, to the effect that China “contemplated exiting the market completely,” as Commerce Ministry Deputy Director Zhi Luxun says. Zhi has uncomplimentary words for the products the Chinese car industry tries to sell abroad. Too much focused on price, lacking in quality and aftersales service. If a Chinese functionary says that …

The exports usually come from “backwards companies,” as Donfeng’s Zhu calls China’s second and third tier car companies. They won’t be around for much longer, thinks Zhu. China’s planners will “withhold resources,” and the backwards companies will die a more or less natural death, if they don’t want to become part of a “withdrawal mechanism” that leads to consolidation among a few large carmakers, Zhu says.  Once that is done, then China will become another Germany, Japan, or Korea that export more than half of their domestic production. Both Zhu and Zhi are sure that it will only be a matter of time.

But it won’t be next year in Chengdu.

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21 Comments on “Chinese Car Exports: Not Yet, We have to Euthanize “Backwards Car Companies” First...”

  • avatar

    Bertel…I see what you did there with the last picture. Nice signage :-) Thanks!!!

  • avatar
    Volts On Fire

    More’s the pity that the U.S. government didn’t have the stones to implement this attitude back in 2008 (and still doesn’t.)

    Cull the weak, dying and dependent to grow the strong. What’s so goddamned difficult to understand about that?

    • 0 avatar
      bumpy ii

      The US government did do that, a few generations ago. The US had piles of dinky automakers in the 1910s and 1920s. Most of the smaller ones were neglected and starved to death in the 1930s. The manipulation of government contracts during World War II and postwar economic policy favored centralization into large corporate conglomerates, and smaller automakers were gradually and relentlessly rolled underneath the preferrred giants. The residuum of that thinking is why the feddies propped up GM and Chrysler, instead of buying them outright and parting out the valuable assets.

    • 0 avatar

      China has over 30 major car brands. The U.S. currently has 2. “Grow the strong” is not a bad idea, I guess the only question is which one did you plan on culling and which did you plan on growing?

  • avatar
    el scotto

    The bailout of GM was a political/economic decision. Imagine GM and thousands of their suppliers going bankrupt (really bankrupt). Thousands of jobs would have been lost and the economy would have gotten much, much worse.

    • 0 avatar
      Volts On Fire

      In the short term, perhaps. I don’t buy that line of thinking as rote, but even if that were true it would have still been worth it in the bigger picture.

      Killing the UAW alone would have far-reaching benefits for the U.S. economy, well worth the sacrifice.

    • 0 avatar
      bumpy ii

      Except that bankruptcy law in the US is explicity structured to avoid the “lock the doors and send everyone home empty-handed” scenario. The implode-the-economy doomcast was never going to happen.

      • 0 avatar
        juicy sushi

        It was when you consider the suppliers were not just GM suppliers, but supplied many manufacturers, and the hit from the death of GM would have put a lot of them under, threatening the supply chain for the health brands. It wasn’t so much about GM, so much as the tier below them and the ripple effects thereof.

      • 0 avatar
        Volts On Fire

        Then bail out the suppliers – the innocents, if you will — instead. The cost would have been minuscule compared with the billions blown on GM and Chrysler.

  • avatar
    schmitt trigger

    As other posters mentioned, China is going thru growing pains similar, though not identical to the ones the US faced several decades ago.

    Several companies (Packard, American Motors come to mind) did indeed dissapear. Others were acquired and consolidated into the Big-3.

    • 0 avatar

      American Motors probably belongs in the “acquired and consolidated” camp –they essentially became part of Chrysler.

      • 0 avatar

        And American Motors was itself a consolidation of Nash-Kelvinator, Hudson, and Kaiser-Jeep. The latter was a consolidation of Kaiser-Frazer, Graham-Paige, and Willys Overland, with Willys also being the heirs to several smaller firms bought over the years.

        For being the smallest of the Big Three, Chrysler has a ridiculous amount of old, defunct companies in its family tree.

  • avatar

    Today, there are almost 160 vehicle brands registered with the NDRC in China. Many of them are very small producers that are supplying the less prosperous regions of the country. Though their vehicles are primitive, they represent the only hope for many to own a motor vehicle. If the inevitable consolidation eliminates many of these producers, without producing an alternative, the disparity between the booming eastern regions, and the backward western regions could reach unmanageable proportions. With the government’s mantra of steady progress through stability, this potential problem must be handled very carefully. The larger producers are all fighting to be survivors, and one hears much less talk of mergers today. No doubt, the consolidation will require government intervention, and will take many years to accomplish. It will be very interesting to follow.

    • 0 avatar

      The logic would be that the newly-consolidated entities would quickly set up operations in the interior, to fill the gap of those small producers which did not survive. The market has a way of providing supply when there is sufficient demand.

      This may be preferable to the current situation, where smaller producers have a captive local market, even when their products are clearly sub-par.

  • avatar

    Honda is importing China made Cars to Canada, only the Versa so far!

  • avatar

    “deflates to what Zhu calls “micro growth,” or single digits to none. He actually predicts that China will be in micro growth mode for the next 10 years.”

    That’s the real major insight in all this: a growing recognition that rebalancing their economy towards consumer spending is necessary and probably going to happen and that this will be the effect. I wonder if they can pull it off, though, since it will mean so many changes to they way they do things that likely will result in a lot less power for the ruling party.

    By the way, I know very well how those guys in the sofa feel, heh.

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