EXCLUSIVE: Bernstein Research Literally Dissects Chinese Cars, Auto Industry In 200-Page Report

Derek Kreindler
by Derek Kreindler

Max Warburton and his team. Warburton, of Bernstein Research, assembled a team to interview over 40 auto executives in China (both Chinese and foreign-born) and even bought two Chinese vehicles from Geely and Great Wall. Warburton had them shipped to Europe, where they were taken to a test track, driven extensively and then taken apart by engineers and automotive consultants. And it was far from pretty.

Warburton and his gang have assembled an epic 200-plus page report that is one part primer on product development, one part spotter’s guide to the Chinese domestic car industry and one part road test feature that rivals anything out of the buff books or Consumer Reports. It is dense, fact-filled and will take a few solid hours to read and absorb.

The first 64 pages are devoted to the ins-and-outs of the Chinese auto industry. Warburton deftly takes us through the various players and their broken-English monikers (Great Wall, Chery, Brilliance and the like) along with thorough dossiers on each one. Who is in bed with whom, which JVs are successful and even interviews with executives where they are asked to praise and criticize the various Chinese auto makers. The consensus seems to be that SAIC is miles ahead of everyone else – thanks mostly to their collaboration with GM.

One OEM executive who had recently left GM China argued that part of the problem was that the international OEMs do not take their responsibilities to the joint ventures seriously — GM being the only exception. What does it take to ensure a joint venture is successful and benefits the Chinese side?

I was part of GM when they put a lot of effort into China…I used to see Rick Wagoner (CEO) in China almost every month…he really spent a lot of time here, especially with the politicians…and they spent millions in the Chinese universities to be good citizens. They’ve built a styling studio, they’ve built a RMB1.6 billion proving ground, they’ve sent their best products to China. They’ve built the engineering function — they went from 400 engineers in 2005 to 2,000 in 2008, now they’re at 2,500. They have a 100% capable engineering center. They are really serious. You need to be serious here. But a lot of [foreign] OEMs are not.

Also in the good books is Great Wall. Along with advanced engineering prowess, Great Wall pays their supplies and vendors on time – apparently, a major issue among the design consultancies and foreign-born experts that, according to Warburton, are responsible for the vast majority of what China’s auto industry does right.

The individuals that Warburton interivews from the engineering firms tend to be extremely bearish on the Chinese auto industry. Managers are largely drawn from the Politburo, engineers are portrayed as incompetent and cutting corners is said to be a way of life. According to one executive, “…a mistake is only a mistake if you are found out.” One auto insider believes that most Chinese sedans of the recent era have been reverse engineered copies of the Toyota Corolla. They key dimensions and “hard points” are identical, and he believes that frankly, the Chinese auto industry is not yet capable of engineering its own car from scratch. Furthermore, they are obsessed with matching VW shot for shot, but their thrifty nature and impatience inevitably hampers their success.

They are all obsessed with matching VW — but we would generally advocate that they would be better going for a twist beam rear suspension with three components, with little to go wrong — rather than a multi-link with 20 that they will then screw up putting into production…to emulate VW or Ford they need to control tolerances within an incredibly tight range — and they end up a long way out.

Along the way, we find out that while Toyota and VW spend in the neighborhood of close to 10 billion dollars on R&D annually, Chinese companies spend around $100 million, largely a combination of stinginess and not having to do so thanks to reverse engineering existing technology. A high-speed drive across a 22-mile bridge illustrates tangible results of this corner cutting.

Later that week, we meet Frank Zhao, Geely’s head of R&D. We mention the Geely EC8’s apparent lack of crosswind stability and ask how much time the car had spent in the wind tunnel during its development. Mr. Zhao is honest, and admits that Geely doesn’t have a wind tunnel (there are only two in China), and that due to alimited product development budget, he needs to choose where to spend his money. Mr. Zhao explains that Geely made the decision not to hone the EC8 in a wind tunnel, because most customers don’t leave cities and very few drive at high speeds on bridges. The money was instead spent on electronic features (satellite navigation, etc.) and solid basic engineering (and we concur, as the body seemed rigid, and noise, vibration and harshness [NVH] were well controlled).

A ride in an EC8 encapsulates where Chinese automobile development is right now. The basics are okay. The cars are adequate. But they are not world-class, in our opinion.

Around page 71, the fun begins, as the team procures, imports and test drives two Chinese cars, the Geely EC7 and the Great Wall H5. Rather than spoil the results for you, I encourage you all to pay close attention to the teardown portion, for an utterly fascinating look at the ins and outs of a Chinese car. There are certain elements that were highly-praised; the Geely’s body-side panel, stamped from one piece, was described as “deeply impressive” and “beautiful” by European engineering consultants. But the engineers and test drives found manifold faults with the car; shabby spot welds, malfunctioning HVAC systems, corroding parts and body panels after just a few hundred kilometers. Ben Oliver, one of the UK’s best auto journalists, was brought in to give his perspective. He declared the Great Wall to be dreadful.

The report seems to conclude that it will take a minimum of a decade before the Chinese are ready to field a competitive product. They are not functioning anywhere close to as competently as a Western auto maker, and the foreign hired help brought in to make them succeed are quickly getting frustrated with the lack of progress and poor attitude.

But Warburton and his team, upon inspecting the Great Wall H6 (successor to the H5) come away impressed with the progress that’s been made. The body-on-frame construction, thirsty Mitsubishi engine and crude engineering appear to have been jettisoned in favor of a much safer and more efficient crossover. Warburton notes that this kind of progress would take a few product cycles at traditional OEMs in past eras and comes away impressed. ” It’s clearly a significant leap forward versus the H5,” says Warburton. “If this is what Great Wall can achieve in 15 months…then it may be building a Bugatti Veyron rival by 2014.”

EDIT: Bernstein requested that the report be removed. The report was generously provided to TTAC but it was not meant for mass dissemination. We apologize for the misunderstanding.

Derek Kreindler
Derek Kreindler

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  • PandaBear PandaBear on Feb 25, 2013

    It has a lot to do with the customers' expectations as well as how much they can afford. Currently they get away because customers will buy any car as long as they are cheap. Like the lack of wind tunnel test, the CEO is right about the customers will not really use it like the US and European drivers use their cars. So what you end up with is a lot of 1st generation driver buying 1st generation cars. As the customers expect more and can afford more, the auto companies will put in more attention and do more. Yes, it would take at least a decade unless they buy a company like Volvo, Mitsubishi (if the Japanese will reduce its pride and let the Chinese buy it), Saab, or hire all the retired and laid off engineers from US/Europe to clean up the mess.

  • CJT CJT on Apr 19, 2013

    Was any more of this report ever to be made available? I would like to read it but as a student I'm too scared to even ask how much it would cost to get access to the document.

  • Zipper69 Current radio ads blare "your local Chrysler, Dodge, Jeep, Ram dealer" and the facias read the same. Is the honeymoon with FIAT over now the 500 and big 500 have stopped selling?
  • Kjhkjlhkjhkljh kljhjkhjklhkjh hmmm get rid of the garbage engine in my chevy, and the garbage under class action lawsuit transmission? sounds good to me
  • ToolGuy Personally I have no idea what anyone in this video is talking about, perhaps someone can explain it to me.
  • ToolGuy Friendly reminder of two indisputable facts: A) Winners buy new vehicles (only losers buy used), and B) New vehicle buyers are geniuses (their vehicle choices prove it):
  • Groza George Stellantis live off the back of cheap V8 cars with old technology and suffers from lack of new product development. Now that regulations killed this market, they have to ditch the outdated overhead.They are not ready to face the tsunami of cheap Chinese EVs or ready to even go hybrid and will be left in the dust. I expect most of their US offerings to be made in Mexico in the future for good tariff protection and lower costs of labor instead of overpriced and inflexible union labor.