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CIAO DATE: 04/05/07
Driving China: The New Automotive Frontier
Interview with Troy E. Clarke and Mei Wei Cheng
For years, American companies have salivated over the prospect of entering Chinese markets. The automotive industry has proven no exception. Over the past fifteen years, American and European automotive companies have rushed headlong into the Chinese automobile market in search of new profits. Though most major automotive companies now operate in the country, this fervor has not abated. General Motors (GM), the second largest automaker in China, continues to invest heavily in the Chinese market. Ford Motor Company, despite operating on a smaller scale, has also made considerable investments in the country. With the initial courtship now over and the Chinese auto market beginning to slowly mature, the Journal consulted Troy Clarke, GM Group Vice President and President of GM Asia/Pacific, and Mei-Wei Cheng, Vice President of Ford Motor Company, and CEO and Chairman of Ford Motor (China), as to the future of the automotive industry in China, and the potential worldwide impact of increasing Chinese participation in the auto industry.
GJIA: GM and Ford have committed billions of dollars to expanding production in China over the next few years, despite a marked slowdown in vehicle sales over the past year and cutbacks in investment from other automakers such as Volkswagen. Some critics have claimed that the auto market could remain flat until 2007. What justifies this faith in your continued expansion?
CHENG: The dramatic growth of China's auto market in 2002 and 2003 reflected several important factors, including increasing per capita income (particularly in the eastern cities and provinces), greater availability of up-to-date products, and the evolution of consumer buying patterns to include automobiles. The growth rate in 2004 slowed to more normal and sustainable levels, and industry volume increased by 15 percent from 2003. The outlook for continued economic growth in China in the range of 7- 8 percent a year likely will result in continuing expansion of the auto industry by 8 to 10 percent annually. Considering the absolute size of the industry (5.2 million units in 2004) and this level of ongoing growth, it is easy to see why just about every automaker in the world is looking to participate in this growth.
According to a recent report by the China Economic Information Center, the annual growth rate of China's auto market is expected to remain at 10-15 percent until the year 2010. China is now easily the third largest auto market in the world, with sales of 5.2 million vehicles in 2004. Even with the amazing growth we've seen, less than 5 percent of the Chinese population has a motor vehicle, so there is still a lot of potential in the Chinese market. The country is expected to become the top auto market in the world in the next fifteen to twenty years.
Ford Motor Company is committed to a long-term development strategy in China. We have a firm belief in the country's sustained economic growth, driven in part by the strength of the growth and development of the automotive industry. We are running a marathon here, not a sprint. We have been rolling out our business development plan in a step-bystep approach, aiming to become a key auto player in China and to stay consistent with our global ranking as a leading auto company.
CLARKE: Let me begin by saying a few words about our new investments. In June 2004, GM announced a series of new investments in China that, pending Chinese government approval, will likely exceed $3 billion over three years. Among the investments are the introduction of twenty completely new or upgraded products, the expansion of GM's manufacturing joint ventures, the growth of GM's Pan Asia Technical Automotive Center (PATAC) automotive engineering and design center, and last year's launch of GM's new automotive financing joint venture (GMAC-SAIC Automotive Finance Co.).
China's vehicle market is anything but flat. Last year's moderate increase in vehicle sales in China followed two years of record growth (sales grew a record 40 percent in 2002 and about 35 percent in 2003). This year, GM is projecting more modest sales growth of between 10 and 15 percent.
Over the next few years, GM anticipates the market entering a period of steady, sustained growth of around 10 percent annually. While this is lower than the unusually high growth of the past few years, it is still very high by global standards. Considering that China has an estimated eight personal vehicles per 1,000 individuals (compared to about 940 in the United States), it is easy to see the tremendous potential for growth.
This explains why GM and most other major global automakers have made success in China a corporate priority. It also explains why GM has taken the lead in expanding the full scope of our operations in China at this time.
Troy E. Clarke is GM Group Vice President and President of GM Asia/Pacific. He is also a member of General Motor's Automotive Strategy Board.
Mei Wei Cheng is Vice President of Ford Motor Company, and CEO and Chairman of Ford Motor (China).