China automakers look overseas as local slowdown pinches
HANGZHOU, China May 11 (Reuters) - Ramped-up capacity by Chinese automakers during the heady days of 30-50 percent annual growth has bumped headlong into a domestic slowdown, and now indigenous firms are seeking buyers in far-flung corners of the world, from Egypt to Ukraine to Indonesia.
With Western markets still out of reach, China's domestic automakers are staking their export push on the same formula that's worked for them at home: no frills but acceptable quality.
Indeed, for many domestic automakers, relying solely on the China market is no longer an option.
"The rapid growth phase of China's auto market is coming to an end, and we see exports as one possible outlet for all the capacity we have built up," says Xing Wenlin, Great Wall Motor vice president in charge of overseas markets.
"We need to go beyond the China market to survive."
On the frontline of this export push are low-cost cars like the Great Wall Haval sport-utility vehicle models and a minicar called the Panda - the same affordable cars whose sales are booming in China as the country's own emerging middle-class clamors to get behind the wheel.
GOOD ENOUGH CARS
The quality of those rides - available for as little as around 40,000 yuan ($6,300) - might not be sufficient for consumers in the U.S. and Europe, but they're deemed good enough for emerging-market consumers around the world. Some in Western markets like Italy and Australia are also starting to notice those no-frills cars, too.
By satisfying a growing appetite for value cars like the Panda, Zhejiang Geely Holding Group Co - a Hangzhou-based auto maker that acquired Sweden's Volvo in 2010 - wants to become an export force. To power its push, Geely is trying, for example, to gain advanced car technology from Volvo to improve and differentiate its cars.
"My vision," Geely and Volvo Chairman Li Shufu told Reuters, "is to sell outside China the same number of cars we sell within China."
Geely this year is aiming to sell 460,000 vehicles overall: 60,000 to 70,000 outside China and the rest within China. The company sold about 38,000 vehicles overseas last year.
Li declined to elaborate on how soon he envisions he can achieve this objective.
A host of other Chinese auto companies are also working to boost exports. Major players include Chery Automobile Co. and SAIC Motor Corp.. They are doing so in part because the quality and safety of their Chinese-designed cars have improved.
Geely's technology and product-development chief Frank Zhao contends that a "commoditization" of technology has helped China's indigenous auto makers improve quality and raise Chinese-designed cars' credibility overseas.
Automotive design know-how was once a well-guarded secret of a dozen companies in the U.S., Europe and Japan. Most of those companies were vertically integrated and produced in-house most of the components necessary to build cars, while sharing little of its expertise with others. But now, Geely's Zhao says, much of that know-how has become available for anybody willing to pay for it.
An economic growth slowdown is also playing into China's auto export push. Vehicle sales grew just 2.5 percent last year after logging growth above 30 percent each of the previous two years. That in turn has freed up capacity to produce cars for export.
According to consulting firm LMC Automotive, automakers in China as a whole used 84 percent of their combined vehicle-manufacturing capacity in 2010. LMC Automotive expects that so-called capacity utilization rate to slump to 64 percent this year. That means 36 percent of automakers' overall capacity is likely to sit unused -- unless they can tap new demand overseas.
Last year, Chinese exports of cars and trucks reached a record 849,500 vehicles, up nearly 50 percent from 2010, according to the China Association of Automobile Manufacturers. A majority of those vehicles - mostly vehicles priced well below 100,000 yuan - were shipped to markets such as Brazil, Algeria and Russia.
Many analysts and industry executives expect the growth to continue at a similar pace - high double-digit percentage growth - at least over the next several years.
Global auto makers are also getting in on the action.
One of the most aggressive among a handful of global makers and their Chinese joint-venture partners is General Motors Co. For GM, the business here until recently was strictly a China play. But after almost 15 years in China, its main joint venture with SAIC Motor is not just a gateway to China. In recent years, GM and SAIC have begun teaming up to export China-market cars to Egypt, Chile, India, Uzbekistan and elsewhere.
Among the most ambitious indigenous Chinese players is Great Wall Motor - an independent auto maker in Baoding, an industrial city 160 kilometers (100 miles) southwest of Beijing.
EVENTUALLY, THE U.S.
In 2007, eyeing an entry into the U.S. and European markets, Great Wall showcased products at the Paris motor show. But when it began making actual export plans, the company, which began manufacturing trucks in the mid-1970s and is still better-known for aping the designs of Japanese auto makers, realized it was an "overly ambitious dream," the company vice president Xing says.
The U.S. market remains "an ultimate objective," the executive says. But for now its sight is set on emerging economies. According to Xing, Great Wall wants to sell 300,000 cars outside China by 2015, accounting for one-fourth of the company's overall sales for that year, which it projects to be about 1.2 million cars.
Last year, the automaker sold a total of 83,000 cars outside China, while overall sales including exports totaled 480,000 cars.
Meanwhile, in the eastern China city of Hangzhou, Geely Chairman Li is counting on Volvo technology to give Geely a boost in exports, first in emerging markets but ultimately with an eye toward Europe and the United States.
Through a local British wholesaler, Geely last year said it planned to start selling by the end of this year a Chinese-produced midsize sedan in the U.K.
Li says his company is still "studying" the idea, but individuals close to the company say any such move would mark the beginning of a broader push by Geely into advanced markets in Europe and the U.S..