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

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 finalyy 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. from The Truth About Cars http://www.thetruthaboutcars.com

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