china automobile
TRANSCRIPT
Historic Development
1953-65 • Initial Stage
1966-80 • Growth Stage
1981-90 • Open Market Stage
1991 • Comprehensive Development
NOW • Current State of Economy
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
1. Initial Stage 50s – mid 60s
• Factories job was to copy and assemble automobiles.
• By 1965, 21 plants
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
2. Growth Stage mid 60s – early 80s
• Government’s policy was to construct Regional Industries.
• By 1980, 53 plants out of 2379 enterprises 12.5% sedans
3. Open Market Stage mid 80s – early 90s
• Radical restructuring.
• Increased investment to meet demand.
• Introduction of foreign technology, foreign technology and management support.
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
4. Comprehensive Development since 90s
• Automobile industry became core part of Chinese economy.
• 15% Average annual growth.
• Enterprises are forced to improve products and service quality.
• Switch from trucks to sedans.
Market Restrictions
• Foreign companies were only allowed to make joint ventures of no more than 50% with local companies and localize 40% of the parts and components to encourage the local industry.
• High protectionism measures
• Government was keeping brakes on the market
• Regardless of their ranks, Government Employees were banned from purchasing cars
• Imports quotas and tariffs
• Non-attractive market due to Consumer behaviors:
1. Preferring cash purchases
2. Preferences made on emotional factors and intangible attributes rather than efficiency or speed
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
Market Structure
Global 6 + 3
Large Motor Groups
Independent Manufacturers
China 3 + X
FAW
DFMC
SAIC
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
Current state of the Economy
6 + 3 Status
Guiding Principles:
• Form larger competitive groups
• Strategic reorganization
• Intensive R & D
• Start International cooperation
Current state of the Economy Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
3 + X status • First Automobile Workshop FAW
10 b$ revenue 22 joint ventures – includes: Audi & Mazda
• Dongfeng Motor Corporation 6 b$ revenue joint ventures: Nissan, Citroen & Kia
• Shanghai Automobile Industry Corporation SAIC the biggest group in china, >10 b$ revenue strong ties with government officials 52 joint Ventures: VW & GM
Current state of the Economy Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
Current state of the Economy “2004”
• Enterprises: majority are state owned account for 30% of production
• Sales: 4.44 million units
• Imports and Exports, 2003: import: 171,903 units of 5.29 b $ export: 47,439 units of 370 m $ in 2006, reached 340,000 units
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
Sedans 45%
Passenger Cars 27%
Trrucks 28%
2004 Sales ratios
104 522
1228
2904 2596 2326
0
1000
2000
3000
4000
19
56
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
Enterprises Number
EnterprisesNumber
Current state of the Economy
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
Joining WTO, 2001 • Decrease tariffs 10% annually for sedans
and 4-8% for trucks and passenger cars.
• Complete cancellation of quotas in 5 years.
• Cancellation of restrictions of importing critical parts.
• Allowance of 100% FDI
• Adoption of international after-sale services
• Removal of protectionism
Current state of the Economy Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
What worked for VW up till 2004?
Hig
h g
row
th &
dem
and
in C
hin
a •Middle class income jumped from USD $ 460- $1091
•Option of car financing by state owned banks
•30% annual growth rate
Stro
ng
allia
nce
wit
h S
AIC
•SAIC is a SOE
•Strong policy support
•Localisation with local suppliers with SAIC support
•Domestic content soared to 70% in early 90s
VW
Str
ateg
y •First Mover advantage
•Simple technology, simple product
•High German Quality
•Low investment for distribution network
•High op. margin: 30% vs. R.O.W 5%
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
VW Competitive Position by 2004 • Summer 2004 VW faced critical issues:
High Cost structure Weak Sales and product
teams
Changing Market; market share plunge to
16%
Change in Customer Profile: Simple
technology, simple products strategy no
longer works!
Losing First Mover Advantage!
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
VW Change Management Programme
• “Start from Zero” change management programme
• Marcus Schütz, Director was tasked to design and implement change initiatives over next 3 years.
• Develop new set of success factors that is sustainable!
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
VW Dilemma
Sales infrastructure
• Reselling and distributing done by SAIC a failure
• Lack of control of S&M
• SVW Sales Corporation: 24 RSSCs and 700 dealers too late
• B2B to B2C structure
FAW vs. SAIC
• Bitter competitors
• Separate distribution networks and supply bases
• Impossible to create synergies btw SAIC and FAW
• High cost management
Modification of Product Strategy
• German standards= overdesigning
• Little flexibility for consumer preferences
• CKD transfer to local bases
• Weak negotiation point
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
GM’s issues
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion
Slow turnaround time
Poor business strategy
Burdened with high cost eg pensions benefits
Financial crisis and prospect of bankruptcy
VW vs. GM in China
• First mover advantage
• S&M retrieved from SAIC too late
• Fear of losing technology advantage
• German Quality standard=overdesign
VW
• S&M in their control from day one
• Channel of technology transfer
• Left localization to local automakers
• Build a component industry GM
Historic Development Current State VW competitive position VW versus GM Future Development Conclusion