Automotive Industry in China

Introduction The automotive industry in China is now facing enormous development opportunity. As is known, China has surpassed US in 2009 and become the No.1 automotive manufacturer in the world. Compared to other automotive countries like US, Japan and Germany with a sharp declination, Chinese automotive industry has attracted the global investment recently. Meantime, questions about the challenge and opportunities that the automotive industry faces have been aroused by manufacturer and many economists. How will Chinese automotive industries¶ strategies develop and how to avoid the misunderstandings? This paper is organized to answer the questions above. It will analyze the industry together with other factors.

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12 Summary«««««««««««««««««««««.15 2 / 15 ..8 Threat from the substitute in the industry««««««««.9 The competitors inside the industry««««««««««.5 The bargaining power of automotive supplie r««««««.14 Reference List«««««««««««««««««««««««««..10 Other Factors«««««««««««««««««««..6 The bargaining power of consumers««««««««««7 Threat from the new entry««««««««««««««..Content Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Automotive Industry in China (Development History)««..3 The sustainability of the automotive Industr y««««««..

Volkswagen has become the most successful foreign automotive company in Chinese now. In 1992. the increasing areas in 3 / 15 . Chin ese automotive industry became the largest in the world. Seven years later. Automotive industry has become an important engine to the Chinese economic development. However. 5 million in 2005 and in 2009 the number has surpassed 10 million. As the most famous domestic car. there is no joint venture automotive company until 1983. the number of manufacturing vehicles in china reached 1 million. it became 2 million in 2000. In the year 2009. Beijing JEEP Co.. In this year. In 1992. Automotive Industry in China (Development History) Chinese automotive industry started in 1951. and Shanghai Volkswagen Co. ³Red Flag´ has been served the President of China for nearly half a century. the first car ³Red Flag´ is manufactured in northeastern Province Jilin where is regarded as the ³Cradle of Chinese automotive industry´.. Ltd were established. China FAW Group exported a truck manufacturing line to Tanzania. Ltd. The development of automotive industry in China in recent years is impressive. For political reasons. First. there are some characteristics to notice. which was the first exporting line in Chinese automotive history.1. Audi was first introduced to China and it has become the best selling luxury cars in China since then. Most of the first 50 international automotive parts manufacturing have their investment in China too. In 1988. the first 15 international automotive manufacturing companies all have their subsidiaries in China. Now.

the automobiles in China is separated into 4 groups. including domestic automobile. domestic 26%. the low-emission vehicles become more and more popular. According to the forecast of China Automotive Association. The automotive parts industry grows significantly. the export of automobile decl ined sharply. the ranking changes to domestic 30%. Forth. just the opposite. traffic jams have already become one of the most annoying things for local government and citizens. German automobile used to be the best selling vehicles in china. German 19% and American 13%. Nevertheless. second-hand automotive and car-leasing etc. including automotive financing. the automotive inventory will reach 2 00 million in China. Japanese automobile. Second. Generally speaking. The competition among these four groups is intensive. the international brands tend to enlarge their purchase of automoti ve parts in China rather than import. Japanese 24%. Nearly every automotive company had a high margin 4 / 15 . which will lead to a sustainable increase in the next few years. Japanese vehicles held 30%. which is extremely low compared to most European countries.the automotive market changed from main cities like Beijing into smaller cities and rural areas. automobile is no longer a luxury symbol. Third. by 2020. I n 2008 of Chinese automotive market. While in 2009. the automobile-based industries grew quickly in 2009. German automobile and American automobile. the investment and merging cases into foreign countries raised significantly. every 100 Chinese people possess only 4 automobiles. In China. In cities like Beijing and Shanghai.

has already set up its own distribution channels in most of the rural area. In Shenzhen. The new energy has become a priority direction for each company. This huge market share is now attracting all of the automotive companies. electrical and solar vehicles. However. The domestic company. Recently. Different companies have different advantages of type of new energy. The MIIT has issued discipline to maintain the sustainability of automotive industry. In Beijing and Shanghai. because of local information advantage and correct judgment. 5 / 15 . more and more automotive companies are now develop ing new type vehicles with low emission and cheaper price. Second.7 billion. The forecast in 2010 is also very optimistic. The sustainability of the automotive Industry The highly increasing demand contribute to the over investment into automotive industry. Ministry of Industry and Information Technology of the People's Republic of China (MIIT) has warned that the automotive industry is now facing an over-production risk. the distributor has so much storage that they could not find enough places to park the cars. The factors to maintaining sustainability includes 3 parts. First. trying to cope with the need in most rural area. The rural population of China now is 0. 2. the new energy vehicles are developed fast to replace the traditional 2009. the automotive center market should generally move from big cities into small cities. New energy vehicles comprise hydride.

In 2009. The last is the merging of the existing smal l automotive companies. South of China. the Volkswagen decided to set another finished automobile factory in Guangdong. to 6 / 15 .domestic automotive manufacturer BYD has produced its electrical vehicles which have been use as local taxi. Especially in 2009. 3. The integration of the small domestic companies will help to design new modes vehicles to compete with Japanese and Germen brandings. has also introduced their Hydride and petrol mixed vehicles which could highly reduce the emission. The additional commitment into Chinese market is an obvious sign. The bargaining power of automotive supplier The automotive industry in China has a great opportunity to develop. the domestic manufacturer Geely has successfully merged the Volvo Car Company. To achieve this. Chinese automotive industry must exam itself and tries to avoid such declination in the future. the whole automotive industry worldwide is now facing a sharp declination. despite the blossom in China. each manufacturer has to implement its own action to raise the bargaining ability. Meantime the domestic automotive companies wish to be more competitive and strong by merging with other companies. The merging cases in China in recent years increase dramatically. The international brand like GM. Nevertheless. BMW. Each automotive manufacturer ¶s concern is trying to obtain the maximize margin in the market.

the profit and competition of domestic manufacturer are strongly affected or even occupied by the foreign companies. The domestic companies have different good qualities. Domestic manufacturing other than import vehicles has greatly reduced the cost for these two companies. the low cost vehicles and embedded distribution channel have contr ibute its success in many undeveloped areas. Toyota. Toyota and Volkswagen. consumer s have to pay additional fees to have the car as soon as possible . have produced their best -selling modes in China. The consumers¶ demand on excellent vehicles 7 / 15 . The competitive price with world class quality decreases a lot bargaining power of consumers. In 2000. the northeast of China. both with 3 joint-ventures in China. They have thorough understanding of its position. The strategy of domestic manufacturing of Japan and German manufacturer reduce the labor. opens its new factory recently in Changch un. parts and transportation fees. 4. Meanwhile. The bargaining power of consumers The consumers in China have gradually become rational in buying the vehicle. about 65% of the vehicle buyers are the first time of buying a vehicle. While in 2009. to produce its best-selling Corolla. about 90% of the consumer on middle class passenger vehicles is the second time buying a car. The consequence is that every time Volkswagen has introduced a new mode into the market.consolidate its number one position in Chinese joint -venture automotive company.

and completed after services is increasing and the dealers is now facing more censorious consumers. therefore. 5. each price level has gathered more choices for consumer. However. entered China relatively later than Volkswagen and Toyota. Meantime. Therefore. Their investment on development is huge. Ford has successfully won a market share in the Chinese 8 / 15 . The increasing of Yuan has shortened the price between import ed and domestic cars. The increase of margin power of consumer has enables the joint-venture companies to commit more in Chinese market and reducing its cost to cater the Chinese consumers. Ford. The increase of this ability contributes to the decrease of car price. Price and quality of the car become the two important factors to bargain with dealers. The margin of the joint -venture is highly increasing while it s production is more popular than domestic cars. The consumers of automobile now have more choices when buying a car. Threat from the new entry Automotive companies introduced their new modes vehicles to Chinese customers. by introd ucing its low price Focus. Both imported and domestic manufactured cars¶ price is reduced to win the customer. as a world leading automotive manufacturing company. the new entries as new care modes into the automotive industry are increasing fast. the domestic companies still have much room to reduce its price. The comparison of cars and after-sale services enables consumer to bargain.

automotive market. When Ford brought new modes and choices to the Chinese market. As a company originated in producing battery. Ford¶s entry threatens the place of Toyota. who¶s VIOS and Corolla used to be dominant in the small car market. the automobile does not have many substitutes. BYD is one of the advanced companies which were in the environmental friendly field. In the end. BYD has huge advantage of developing electrical automobile. However. Ford being a new entry company chose to enter the insignificant small vehicles market which is not competitive. The fact proved his right decision that the Return on Invest (ROI) on BYD has been more 9 / 15 . who had purchased 10% of the BYD¶s share. After Focus. 6. environmental friendly vehicles are gradually attracting the world attention. After studying its competitor and the reaction of Chinese consumer. The tech nology of BYD attracts even Warren Buffet. the new manufacturing ability and new competition was also brought in. Threat from the substitute in the industry For the moment. the competence will be much stronger. The profit rate in the automotive industry will decline because of the potential entry. It¶s believed the future belongs to these new modes. They reached their goal. the profit of the market will be reduced. Ford concluded its entry would be of great opportunity. However. Ford introduced similar modes Fiesta and Mondeo to Chinese consumer and won great success.

However. The competitors inside the industry The rivalry among the automotive competitors may be the strongest compared to other industries. advertisements. SHIFENG is not a real automobile rather a car-like motorcycle. hydride and solar power vehicles have also made impressing progress. each vehicle could run for 100 kilometers. electrical charger has been set up in several petrol stations. a low-cost electrical vehicle called SHIFENG is now spreading fast. Especially in rural area. In Beijing and Shenzhen.than 600%. electrical cars would be adapted by more Chinese consumer. With the oil price goes up. the electrical vehicles would be become more and more popular. after-sale services and automobile finance. Besides the electrical automobile. In many aspects. the sooner it would be put into use. The lower cost the substitute is. 7. However. The conflicts include product prices. In the near future. the 10 / 15 . When in full battery. Each company wishes to share more on the Chinese market. This phenomenon brings conflicts among each manufactures. Mercedes announced its cooperation with BYD early 2010 to develop new electrical vehicles and a joint-venture would be set up to create new vehicles. this indicates the potential consuming demand for low cost electrical vehicles. human labor. The four different types of automotive company do their best to win the market share and compete with each other.

multiple joint-ventures with NISSAN and HONDA and thorough supply chain including engine. The disadvantages of DFAC include lower innovation of technology. expansion market share of domestic brands. The threats for Chery include the over -production.over-production of vehicles has become a fact in China market. international brands¶ impact on Chinese market. some domestic companies have achieved a good grade in 2009.000 vehicles in 2009. The advantage of DFAC comprises scale merit. sold 500. low competence and an abundant of subsidiaries with inefficient 11 / 15 . Chery. number one domestic brand. Compared to foreign brand and joint -venture companies. first automotive financial company and low price. distribution channels and networks. The advantages of Chery include innovation. self-designed engine. Ranked number 3 of the Chinese Automobile Companies and originated in heavy truck vehicles. domestic companies are in a relatively weak position. price battle and reduced overseas demands. Nevertheless. DFAC won a large market shares in different level of vehicles. core technique relied on other company and low assembling process. Another company Dong Feng Automobile (DFAC ) is a government owned old brand company. It is also the number one exporting brand of domestic companies. The disadvantage include low brand awareness. which means one or more company has risk of being knock-off in the competence. The opportunity for Chery is the potential increase of Chinese market. complete production line for each level vehicle.

Other Factors The automotive industry in China faces more factors other than the manufacturing itself. 8. China is now under fast developing both in urban and rural areas.5 million. The threats are the over-production. meant that two digits could not run on weekdays. The traffic problems in cities like Beijing and Shanghai has become a social concern. and it would reach 7 million by 2015 approximately. It includes road conditions. local companies need more core competent technologies to fix its position. every weekday maximum 80% of the automobile are supposed to run on Beijing. as the vehicle stock rising. favorable policies to automotive industry and the increasing demands for heavy trucks. The cooperation between domestic companie s and world branding companies contributes to the fast development of local company. competitive environment in heavy truck vehicles and decreased overseas demands because of the financial crisis. the government regulated the traffic restrictions which based on the last digit of the license plate. But now. However. government policies and automotive taxes and etc. 12 / 15 . This regulation appeared to work well on the first couple weeks. The opportunities for DFAC include increasing local demands. more families are able to have two cars to cope with the restrictions. That is to say. The total number of vehicles now in Beijing has reached 4.

0L and the highest is 25% when the car displacement is more than 3. we could find the government encourage consumer to purchase more small displacement 13 / 15 . This policy means that if the car is old enough to be discarded and the owner wishes to buy a new one. At the moment. including motorbikes. The government policies play an important role in Chinese automotive market. Automotive taxes are also a key factor in buying a new car. The duty indicates five different levels of vehicles according to the displacement.Traffic jam is still a severe problem happens every day on Chinese metropolises. There are four lists which have been introduced by MIIT and the name within the lists could be used under this policy. at the moment. according to the data from MIIT. From the data. All automotive companies hope to be listed which means great opportunities into rural area where 0. This policy. only government owned companies like DFAC was named on it. has successfully accounted for more than 22 billion RMB¶s automotive selling in 2009. The second policy which was also issued in 2009 named ³Auto Replacement´. One was issued in 2009 named ³Car to the Countryside and Rural Area´. which means providing subsidiaries to rural area residents to purchase home appliances and motor vehicles. he could apply for a discount when buying a new car.7 billion people live. The existing Auto Consumption Duty was issued in 2006 and changed a little in 2008. The lowest tax is 1% when the car displacement is under 1.0L. Nevertheless. two main policies are triggering a large inc rease in vehicle selling.

On the other hand . But as the leading industry. is focused by the entire world. It is believed the fast growing Chinese automotive market will lead to the recovery of the whole automotive industry in the world. The world branding companies invest in China firmly which intended to earn more share from this booming country. Summary Automotive Industry.vehicles. a leading industry in modern China. The domestic brandings did their best to integrate and develop key technology to shorten the distance with world brandings. The high emission and luxury cars are taxed so high that their prices is generally twice the price as it is sold in Europe and America. 14 / 15 . Chinese government paid much attention on it and tried to maintain its growing speed. over-production and other factors is a potential risk for those companies. 9. Reference List Eric Harwit (1995) China·s Automobile Industry. 10.

COM.E Inc (2007) Managing Strategic Risk in China·s Unpredictable Automotive Market Deloitte (2009) Report of Chinese Automotive Industry 2009 XGO.html (2010) Analysis of Chinese Automotive Industry Deloitte (2010) Automotive Industry Analysis BYD Auto 15 / 15 . Inc Rongxiang Chen (2004) Global and Chinese Automotive Industry Analysis Bearing Point.M. 2009 from & ZDC (2009) China Auto History Sep 6th.

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